How to invest in SIP
Mutual fund investments continue to remain the most popular choice among investors looking to build their wealth, despite the availability of several other instruments of investment in the market. One of the most prominent reasons for this is that the investor can invest sums in various sectors at the same time. As such, he is compensated and can earn good returns even if one of his funds is not performing as per his expectations. Mutual funds allow you to diversify your portfolio, beat inflation and offer a comparatively higher return on investment as opposed to say, fixed or recurring deposits. They are also managed by professional fund managers and come with low costs of investments. In fact, one of the handiest ways of investing in mutual funds is through SIP or Systematic Investment Plans. Let’s find out what is SIP and how to start SIP investment.
WHAT IS SIP?
Systematic Investment Plans or SIPs, as they are popularly known, are one of the handiest methods through which one can invest in mutual funds. A SIP is a flexible and simple investment plan which allows the investor to make investments in the form of installments towards the mutual funds of his choosing. The investor simply needs to invest a particular sum of money, periodically towards the SIP investment (for instance on the 5th of each month). SIP investments can be made both, offline and online and the pre-determined amount of money is simply auto-debited from the investor’s account and invested into a specific mutual fund scheme of his choice. You can choose more than one mutual fund scheme for SIP investments as well.
Fund management companies charge a small fee for the services rendered.
STEP BY STEP GUIDE ON HOW TO START SIP INVESTMENT
Step 1: The first step begins with understanding your objective for investment
SIPs help you achieve many of your financial goals over various points in your life. But you need to go about it, the smart way. You need to set clear objectives for your SIP. This simply means that you need to be clear of the reasons why you want to invest. Understanding your objectives helps you achieve your financial goals. You could have a wide variety of reasons for your SIP investment such as purchasing a new car, financing your child’s future education, paying for their wedding, and going on a vacation or even saving for your retirement and so on. Your objective could also be something as simple as wealth creation over a period of time. Therefore, it is integral that you know your investment objective. Doing so can help you create the right portfolio, featuring a mix of various kinds of mutual funds.
Step 2: Next, you must assess your risk appetite
Any financial goal you set has to be in tandem with your risk appetite. Remember to invest only that much that you are comfortable with. The beauty of SIPs is that you can make payments in monthly/ weekly/ quarterly installments, but you must consider all your other financial obligations and requirements such as monthly expenses, EMIs, credit card bills and so on before you dedicate a sum towards SIP investment. Your investment also depends upon the risk you are willing to take. High risks can reap high rewards, but if you prefer to stick to conservative investments, that should be your strategy. In most cases investors who are older and who have higher financial obligations, the risk tolerance levels are lower.
Step 3 – You must now choose the funds in which you wish to invest
When you think of how to start sip investment, you need to dedicate some time to research. There are innumerable mutual fund schemes available in the market for the investor to choose from. That said, you must select only those funds that match your risk appetite and the financial goals you wish to achieve from the SIP investment. In order to do so, you must do some research about your chosen fund’s performance in the last few years. After you have zeroed in on the mutual fund company you wish to invest in, you need to follow the below-mentioned steps:
Fill up the mutual fund application form – You must provide your personal information such as your name, address, date of birth, PAN card number as well as the amount you wish to invest.
Choose your SIP payment method- You can either opt for offline SIP payments for which you must submit cheques of monthly SIP (like EMI cheques) or you can opt for online SIP payments. For the latter, you must also fill up an ECS form for the money to be deducted from your account every month.
Provide your bank details – Next, you must provide a canceled cheque with your signature on it. This is to record your bank details such as the IFSC number and your account number when you redeem the fund.
Provide your proof of identity and address – You must have all the necessary documents in order, including photocopies of your PAN card, Aadhaar Card, address proof.
Complete your KYC compliance – You also need to complete your KYC compliance mandatorily before you begin mutual fund investments. KYC compliance has to be done only the first time, after which you can keep purchasing and selling mutual funds as you please.
Step 4: Choose the SIP date and investment method
Under SIP, the investor’s money is auto-debited from his bank account. Due to this, the investor must choose a specific date in the month, when he can conveniently make the SIP payment. You can choose a date close to your salary date i.e. a date when you are confident that you will have money in your account for the SIP payment. You may also choose more than one date for your SIP payment, especially if you have chosen different funds through SIP. Typically, mutual fund companies’ offer sates such as the 1st, 5th, 10th, 15th, 20th and 28th day of the month for SIP payments.
Step 5 – Determine the duration of the SIP investment
Since SIP investments are usually in sync with the investor’s financial goals, he must determine for how long he would like to stay invested in a particular fund. You could choose different types of SIPs that can fulfill all kinds of goals, be it short-term financial goals like going on a vacation, medium-term goals like purchasing a car, or long term goals like saving for your retirement.
Step 6 – Continue making monthly SIP payments until your chosen investment period ends
SIPs enable investors to create wealth in the long-term. Unlike with stocks or equities, you do not need to keep checking the prices of mutual funds every day, nor do you need to time the market on a daily basis. While it is recommended that you review your mutual funds every once in a while; you do not have to keep a tab on the fund’s performance on a daily basis. Simply continue making your SIP payments until the investment period ends.
HOW TO INVEST IN SIP ONLINE?
As we mentioned above, SIP investments can also be done online. Now that we have explained how to open a SIP account, let’s understand how to invest in SIP online. Simply follow the below-mentioned steps
Step 1: Keep all the necessary documents handy
The first step in how to invest in SIP online is getting your documents in order. You must have scanned copies of all the necessary documents which include your identity and address proof. You will also need your cheque book and one or two passport size photographs. The PAN Card is a mandatory document and it also works as your identity proof since it has your photograph affixed on it. For your address proof, you can provide you Aadhaar Card, Passport, Bank Statement, Driving license or your utility bills like electricity or telephone bills. While the Aadhaar Card is not mandatory, having it handy can it can certainly simplify the online process. Once you have the documents handy, your SIP account can be processed online.
Step 2: Complete the KYC formalities
KYC or Know Your Customer compliance is mandatory for online SIP investments. To this effect, you must provide your necessary personal details which include your name as on government documents, your date of birth, residential address and your mobile number, to complete the KYC formalities. While KYC compliance seems like a hassle, it is mandatory and has to be done only once, after which you can invest in various kinds of mutual funds from different fund houses. KYC compliance can be completed online via eKYC channels which are easily provided by various mutual fund companies. Simply upload soft copies of all the documents as per the list provided on the website, with your filled KYC form. You may also be required to confirm your physical presence for which the mutual fund company may set up a video call. Once this is done, you can begin investing in SIP online.
Step 3 – Start your online SIP investments
You can now go online and start looking at websites of the different fund houses in which you would like to invest. Go to the ‘Register Now’ or ‘New Investor’ tab on the website. You will be prompted to fill in another small form with your basic personal details such as your name, phone number, e-mail ID and so on. You must also set your username and password and link your bank account details so that periodic debits can be set up and funds can be transferred when you redeem your mutual funds. Once you have logged in, you can select the schemes you wish to invest in and assign dates for the SIP debit. It takes approximately 30-45 days for your online SIP account to get activated.
Mutual funds can be purchased either offline or online.
Online mutual fund purchases have three options where the investor can buy MFs from
Online stock brokerage websites
Online mutual fund distributors
Mutual Fund’s website
HOW TO REDEEM YOUR MUTUAL FUND?
But simply knowing how to open sip account and how to invest in SIP online is just part of the process. Another important aspect of mutual funds is redeeming the fund. One would also need to redeem their mutual fund units at some point or the other. To redeem means to buy back. It refers to the act of purchasing back of funds that were sold before. Depending upon how you have chosen to invest in mutual funds, there are different ways of redeeming the same. They are as under.
Method 1 – Redemption directly through AMC
If you have purchased your mutual fund directly from an Asset Management Company or AMC, then you can sell off the fund simply by logging onto the AMC’s online portal which provides you the option of redeeming your units. You may redeem all the units of the fund you invested in or in parts, depending upon your requirement. While you can use the online method for redemption as an option for redeeming your fund units, this process can also be conducted offline. For this, you need to visit the office of the AMC where you must fill your fund redemption form and submit the same. Once the request is processed, the redemption amount will be credited to your bank account via NEFT transfer or through a cheque that would be couriered to your registered address. Note that the online mode of redemption is quicker as the amount is credited to your account within one to two days.
Method 2- Redemption through Demat account
If you purchased the mutual funds through your Demat or trading account, then you must process the redemption through the same account. After the trading process is completed, the fund company makes an electronic payment via IMPS or NEFT against your redemption request. The redemption amount is credited in the same bank account which you register with your debit account.
Method 3 – Offline redemption through agents/distributors
If you choose an intermediary like an agent or distributor to purchase your mutual funds, then you can use the same intermediary to sell of your funds as well. To this effect, you must fill in a redemption form mentioning the number of units you wish to redeem. The agent will then process the request after which the money will be credited to your linked bank account through an NEFT transfer. You could also opt to receive a cheque at your registered address.
Method 4 – Redemption through registrar and transfer agency
Certain central services such as CAMS (Computer Age Management Services) allow you to redeem your mutual funds from various AMCs. The investor can simply download the redemption form, fill it and submit it at the nearest CAMS office, to redeem the funds.
You are allocated a specific number of units based on the continuous market rate called NAV (Net Asset Value) for the day. Every time you spend money, more units of the scheme are acquired at the market rate and added to your account. Hence, units are purchased at different rates. Investors avail benefits from Rupee-Cost Averaging and the Strength of Compounding.
With volatile markets, most investors are skeptical about the best time to invest and try to ‘time’ their listing into the market. Rupee cost averaging enables you to opt out of the guessing game. During the volatile period, it may allow you to get a lower average cost per unit.
Rupee cost averaging, as the term suggests, simply averages out the cost at which the investor purchases his mutual fund units. It refers to the impact of averaging your investment. Rupee cost averaging typically happens when one purchases more units are a lower price, whereas few unities are purchased when the price of the fund is high. This is an investment technique which can lower the cost price of the investment, and the investor can profit with more gains when the market witnesses a high. Due to the way that SIPs are structured, this technique of investment has become a natural process in SIP investments.
Since SIP investments typically last for durations lasting a year or more, the investor’s money is invested at different points which include both, the bull and bear phase when the market is up and down respectively. As such, the number of units that are purchased may not be the same at all points during the year when the SIP is made. However, since the investments are made during both, growth and contraction, the overall effect of the market’s volatility can be reduced to a great extent.
POWER OF COMPOUNDING
To create a corpus over a period of time, one must begin investing as early as is possible. It is also important to continue the practice of investing regularly. If you do this, your small investments can grow into large sums, by following a systematic and regular plan like SIP. When your money grows, you must not redeem it and rather reinvest the returns you’ve earned with each matured investment. This is known as the power of compounding. The power of compounding is the biggest benefit you can get from SIP investments and it is the surest way in which you can build your corpus. Let’s look at it with the help of an example.
If you began investing ₹10000 a month, year on year for 20 years, in 20 years’ time you would have put aside ₹24 lakhs. If that investment is increased by an average of 7% a year, it would be worth ₹52.4 lakhs when you reach 60.
But, if you started investing ten years earlier, your ₹10000 each month would sum up to ₹36 lakhs over 30 years. Considering the same average yearly growth of 7%, you would have ₹1.22 Cr on your 60th birthday – more than double the value you would have received if you had begun ten years later.
With Angel Bee, you can invest in SIP easily. In less than 5 minutes, you can open your SIP account and get started. Angel Bee gives you an easy way to keep track of your investment portfolio through its investor-friendly dashboard. Additionally, you can get personalized recommendations that suit your investment objectives and your risk appetite. So start investing right away by downloading the Angel Bee app – the smarter way to get rich!