Do you believe you can build a substantial corpus with as little as Rs.500?
No. We are not concocting a fairy tale! With a Systematic Investment Plan or SIP, it is indeed possible to build a reliable corpus over time.
Typically, SIP is a facility that allows investors to mobilise a fixed amount of savings at regular intervals and direct the same towards selective mutual funds. The fact that SIPs enable you to park as little as Rs.500 into mutual funds, makes it a viable investment option. That is if you intend to develop a disciplined approach towards investment, especially towards savings.
Wondering how you can invest in SIP?
Read along to learn the process and enjoy the galore of benefits that accompany this investment plan.
Steps of Investing in SIP – In a Nutshell
Step 1 – Identify and assess your risk appetite
Before you decide to tread into the world of SIP or investment in general, make sure to ascertain your capability to weather market risks.
One rule of the thumb to gauge an investor’s risk appetite is – the older people are, the higher is their financial liability and lower the risk appetite.
However, you must also understand that a high reward aspect accompanies a high-risk factor. It means, in order to generate higher returns on your investments, you will have to be ready to weather greater risks.
So, strengthen your risk appetite accordingly and do not forget to develop effective risk mitigating strategies to cushion the same successfully.
Step 2 – Recognise your investment objective
Once you have ascertained your risk appetite, you need to understand what the driving force behind your desire to invest is.
In other words, you need to understand your financial goal or investment objective and plan to realise it accordingly.
Typically, individuals tend to invest with either one specific financial goal in mind or a plan to achieve multiple ones. Also, having a fair idea about the investment goal comes in handy to build a significant investment portfolio.
For instance, individuals who intend to plan their retirement by routing their mutual fund investments through SIP may opt for an investment portfolio that has the lion’s share of debt instruments and less of equities.
Step 3 – Select a profitable mutual fund
You will find several mutual funds in the market today.
However, not all of them are suitable for you and your intention to start SIP.
So, to choose a profitable mutual fund, you need to factor in these following and then assess which of the available investment avenues matches your requirements.
- Risk appetite
- Financial goal
- Performance of the funds in question
Step 4 – Set a convenient date and time horizon
The SIP allows you to opt for an auto-payment option and in turn, eliminates the need to track the periodic investment date. However, to initiate the same, you will be required to choose a convenient date. It must be noted here that you can select multiple dates to route your investments through SIP each month.
Once you have chosen a reasonable date of investment, you should decide on a time horizon for SIP. Typically, the investment horizon is determined based on an investor’s financial goal and investment amount. To make the entire process less cumbersome, you can use a reliable SIP calculator and decide the duration and amount ideal to meet your financial goals.
It must be noted that you have an option to route your investments through SIP both online and offline as per your convenience. Also, the discussed auto-payment facilities eliminate the need to transfer money manually into the SIP account.
Glance through this table below in case you were wondering how you can invest in SIP online.
|Step 1||Accumulate required documents||Keep these documents handy to start investing in SIP –|
|Step 2||Complete KYC formalities||To initiate investment through SIP, you will require to provide details like – name, contact details, date of birth, etc. Notably, it is a one-time process. Once you complete it, you can proceed to put your money into multiple funds. |
You will have to log onto the official website of your chosen fund house to get your KYC done.
|Step 3||Start SIP online||Select the mutual fund of your choice , set up a monthy SIP date and make payment via the available payment options to invest.|
Nevertheless, before investing via SIP, you must become familiar with the accompanying pros and cons. Having a clear idea about them will help to make an informed decision and streamline your investment pattern accordingly.
Benefits of SIP
Typically, the accompanying features of this investment route manifest these following benefits. You should be aware of them to make the most of your investment plan –
- 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 wavers off 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 into 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.
Also Read: Steps to Invest in SIP on Groww App
Limitations of SIP
These are among the most noteworthy drawbacks of SIP that you should factor in before investing through it –
- Long term results – Both rupee cost averaging and the power of compounding proves fruitful in the long term. It means, to generate substantial returns on SIP, you will have to stay invested for a longer duration.
- Less control – As an investor, you will not have much control over the investment amount. If you ever plan on changing the amount, you will have to stop the existing SIP and start a new one accordingly.
So, make sure to keep these aspects in mind before you plan on investing in SIP. Also, if you plan on investing online, make sure to talk to your fund manager beforehand and derive the required strategies to streamline the process.
Remember, when it comes to SIP, you must have a systematic approach to everything!
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.