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How to Invest in SIP

22 June 2022

SIP or  Systematic Investment Plan is simply an investment option where money is invested in a scheme periodically over time, at pre-decided intervals (such as a month or quarter), without any interruption.

Most importantly, SIP helps investors build wealth through regular investment and compounding of returns, even if they start small. This is done through an electronic platform such as the NSE or BSE, or even manually by filling in the paperwork and making transfers of funds each month.

What is SIP?

What is SIP how to invest in it is a perpetual question. Simply put, SIP is an investment option in Mutual Funds wherein small amounts at regular intervals are invested in different types of mutual funds. It is a time-tested technique and it minimizes the risk of loss and allows the investor to purchase Mutual Fund Units at lower costs by making regular investments.

Three Main Types of SIPs:

  • Top-up SIP
  • Flexible SIP
  • Perpetual SIP

1) Top-up SIP

It allows you to increase your investment periodically as the value of your portfolio goes up. 

2) Flexible SIP

It lets you increase or decrease your investment on demand provided the last purchase has not been made more than two months ago.

3) Perpetual SIP

It allows you to carry on the investments without an end to the mandate date.

You may also want to know, Best Mutual Fund SIP Plans to Invest in 2022

Why Should You Invest In A SIP?

Systematic investment plans, or SIPs, are one of the most cost-effective ways to invest in mutual funds. If you invest a fixed sum at regular intervals into a mutual fund, you automatically take advantage of market volatility without having to worry about timing the market.

SIPs let you put your money to work without sweating the daily fluctuations of the stock market.

Benefits of Investing In SIPs

  • Rupee Cost Averaging

Such a benefit manifests when you buy more units while the market is low and sell them when the market is thriving. It is believed that rupee cost averaging lowers the overall cost of investing and also waives the risk of investing at the wrong time. 

  • Power of Compounding

It helps in wealth generation by adding the profits generated into the principal investment amount and reinvesting the same. This characteristic accelerates profit generation and helps you to build a corpus faster.

  • Disciplined Investment Approach

SIP requires you to invest regularly in profitable funds. In turn, it not only encourages savings but also helps to inculcate a disciplined approach towards investments. 

  • Freedom from Market Timing

Since you are required to invest at regular intervals, you will no longer be worried about timing the market. 

Steps To Follow Before Investing In SIP

Before you invest in a systematic investment plan, you should consider the following points:

  1. Consider Your Financial Goals

Your investment goals can be defined as the long-term financial objective that you are trying to achieve with your money. This may include things like investing for retirement, building an emergency fund, or just saving for a major purchase such as a house or car.

  1. Consider Your Investment Horizon

The investment horizon refers to the time frame within which you intend to make your investments.

For example, if you are planning on investing with your retirement funds in 10 years, then you will likely want more conservative investments than if you have no idea when they will need to be used and need every penny right now.

  1. Know your Risk Appetite

Before you start investing in a systematic investment plan, it is important to know what your risk appetite is. This is the amount of money you are willing to risk every month and is based on your investment goals and risk tolerance.

To calculate your risk appetite, add up all the monthly expenses that you have and divide it by 12. The result will give you an estimate of how much money you can afford to lose. For example: if you have $200 per month in expenses, then $50 can be risked each month without affecting your financial goals too much.

  1. Calculate with SIP Calculator

Once we know our risk appetite, we can use a SIP calculator to estimate how much money we need to invest every month based on our target portfolio size. This calculator takes into account both the initial deposit amount and the number of years until retirement when calculating how much money needs to be invested every month for each year remaining until retirement.

The best part about using this calculator is that it will show both monthly contributions and returns over time so that you can see exactly how long it will take before your investments pay off.

  1. Seek Financial Advice

Before you invest in a systematic investment plan, it is important to seek financial advice. Many financial professionals can help you find the best investment funds for your needs. You should also consider visiting your local financial advisor or accountant to discuss your goals and determine whether a systematic investment plan would be appropriate for you.

How To Invest In A Systematic Investment Plan in India?

Here are some easy steps to answer how to start SIP investment in India-

Step 1 - Keep All The Necessary Documents Ready

You will need to make sure that you have all the necessary documents ready before you can invest. Since it is a long process, it is recommended that you start by keeping all the documents that are required for ID proof, PAN card, and address proof ready.

Also, make sure that your account number and bank account details are correct. A copy of your passport or driving license will be required as well. If you plan on making investments other than cash, then make sure that they are compliant with the current KYC norms set by the government.

Step 2 - Get Your KYC Done

Before investing in any financial product, it is important to comply with KYC norms set by the government. To do so, you need to fill out an application form at any of India's authorized banks or post offices where pre-paid cards are issued.

You can also apply online if you don't want to visit a bank branch personally or if there isn't one nearby where you live. The application form includes personal details such as name, address, photo ID proof (passport/driving license), and a declaration about the investment you are making.

 Step 3 - Register For A Sip

To start investing in a systematic investment plan (SIP), you first need to register with the Indian broker or financial advisor that you wish to work with. Once you have registered, you can then choose from a wide range of investment plans to suit your needs and risk profile.

Step 4 - Choose The Right Plan For Yourself

This is the most important step. If you do not choose the right plan, it will be difficult to get a good return on your investment. All plans are different and will have different features and benefits. Before choosing a plan, ask yourself:

- How much risk?

- How many units (units = shares) do you want?

- What type of investor are you?

Step 5 - Choose The Amount Which You Want To Invest

Choose the amount you want to invest in the scheme. It is important to choose how much money you want to invest every month or every week. This will depend on how often you need money and how much money it will be worth at any given point in time. 

Step 6 - Submit Your Form

Start the SIP by submitting the form online or offline (depending on your fund house). You can submit your SIP online if you have an online Demat account. Alternatively, you can also submit it offline through post offices or your bank.

Signing up for a SIP is free and simple. Most banks and brokerages offer plans that allow you to set up automatic deposits into index funds or mutual funds (which is a great way to go). You can choose to start and invest SIP online on your own using an online investment service or by buying individual stocks or bonds directly from an online broker or from a financial advisor. 

Conclusion

A Systematic Investment Plan is a smart and hassle-free mode for investing money in mutual funds. It allows an investor to invest a fixed amount via monthly or quarterly investments. This mode of investment ensures discipline and regular investments in the best mutual funds, which makes the entire process of wealth creation easier for the investor. 

It is a better way to build wealth than lump-sum investing because it reduces the risk of volatility inherent in investing in stocks. It provides returns that are comparable to those delivered by blue-chip stocks, ensuring that your money will grow consistently and predictably. 

And to gain a better understanding of the future of the investment you make, you can use a reliable SIP calculator. This calculator allows you to compare the benefits of investing money monthly in a mutual fund through SIP with a lump-sum investment or periodic investments (like ECS). It is useful for small investors and large ones who prefer systematic investments.

Disclaimer: The views expressed in this post are that of the author and not those of Groww.

Disclaimer

The stocks mentioned in this article are not recommendations. Please conduct your own research and due diligence before investing. Investment in securities market are subject to market risks, read all the related documents carefully before investing. Please read the Risk Disclosure documents carefully before investing in Equity Shares, Derivatives, Mutual fund, and/or other instruments traded on the Stock Exchanges. As investments are subject to market risks and price fluctuation risk, there is no assurance or guarantee that the investment objectives shall be achieved. NBT do not guarantee any assured returns on any investments. Past performance of securities/instruments is not indicative of their future performance.
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