What is Systematic Investment Plan? (SIP)
SIP is a method of making disciplined investments over a set period of time in investment vehicles like ULIPs or mutual fund schemes. You can create a sizable corpus for future needs by making small SIP investments over an extended period of time. The SIP Investment amount is automatically deducted from your bank account because auto-debit is an option. Additionally, it promotes long-term savings habits.
Despite being practical, SIPs are not the only way to invest in mutual funds or other similar investment vehicles. Another common strategy is to invest in lump sums. A significant sum of money is put into the preferred investment vehicle all at once when investing in lump sum. Putting Rs. 1 lakh into a 5-year mutual fund scheme, for instance.
Understanding SIP
A common query is how to invest in SIP and what SIP is. Simply put, SIP is a mutual fund investment option whereby small sums are invested in various mutual funds on a regular basis. By making consistent investments, it is a tried-and-true method that reduces the risk of loss and enables the investor to buy mutual fund units at lower prices.
One of the most economically advantageous ways to invest in mutual funds is through systematic investment plans, or SIPs. When you put a set amount into a mutual fund on a regular basis, you automatically profit from market volatility without having to worry about market timing.
Also Read:6 Things to Consider Before Investing In an Index Fund
How to Start Invest in SIP in India?
These simple steps will help you start a SIP investment in India:
Step 1: Have all necessary documents on hand.
Before making an investment, you must make sure that you have all the required paperwork on hand. Since it is a lengthy process, it is advised that you begin by having all necessary records available, such as:
ID Proof
PAN Card
Address Proof
Make sure your bank account information, including the account number, is accurate. also, a copy of passport and licence will also be need. Make sure your investments adhere to the current KYC requirements the government sets if you intend to make anything other than cash investments.
Step 2: Complete Your KYC
It is essential to follow the KYC requirements established by the government before investing in any financial product. To do this, you must complete an application at any authorised bank or post office in India that issues pre-paid cards.
If you don’t want to go to a bank branch in person or if there isn’t one close to where you live, you can also apply online. The application form asks for personal information like your name, address, and a photo ID (such as a passport or driver’s license), as well as a statement about the investment you plan to make.
Step 3: Make a SIP Account
You have to register with a broker or financial advisor before start investing in a systematic investment plan (SIP). After registering, you can select from any of investment plans on your needs and risk you can take it. It is important to check the terms and conditions of every plan before investing, and to regularly check your investments to ensure they fulfil your goals.
Step 4: Select the Best Option of SIP Investment
This is Most important step. It was not easy to get a best return on your investment if you don’t select the best plan. Every plan is different and have extra features and advantages. make the following before selecting a Plan:
- How many problems?
- How many units—which are equal to shares—do you need?
- Who are you as an investor?
Step 5: Select the amount you wish to invest
Choose the amount of money you want to invest in a scheme based on your financial goals and risk tolerance. It is recommended to start with a small amount and gradually increase it over time as you become more comfortable with the investment.
Step 6: Select a date for your SIP Investment
Choose a date that works best for you. In a given month, one can select numerous dates for various SIPs.
Step 7: Submit Your Form
After selecting the mutual fund provider, begin the SIP by completing the form either online or offline (depending on your fund house). If you have a Demat account online, you can submit your SIP online. As an alternative, you can mail it in or deliver it to your bank.
The majority of banks and brokerages provide programmes to set up automatic deposits into mutual funds or index funds (which is a great way to go).
Additionally, you can start and fund SIPs independently online by using an online investment service, purchasing specific stocks or bonds from an online broker, or consulting a financial advisor. The ADF must be completed and presented at the nearest bank branch if you choose the online option, or you can select the e-mandate/billpay/e-nach mode of payment.
What to Think About Before Investing in SIP
The following factors should be taken into account before you decide how to invest in sip mutual funds:
Examine your financial objectives
Your long-term financial objectives that you hope to accomplish with your money can be referred to as your investment goals. This could entail setting up an emergency fund, investing for retirement, saving for a large purchase like a house or car, or doing all three.
Take a look at your investment horizon
The time period you plan to invest in is referred to as the investment horizon. For instance, if you intend to invest with retirement funds in ten years, you’ll probably want to make more cautious investments than if you don’t know when you’ll need the money and need every last penny right away.
Know Your Appetite for Risk
Know your risk tolerance before you begin investing in a systematic investment plan. Your investment objectives and risk tolerance will determine how much money you are willing to put at risk each month.
Add up all of your monthly expenditures and divide by 12 to determine your risk tolerance. You can estimate how much money you can lose based on the outcome. For instance, if your monthly expenses are Rs. 5,000, you could risk Rs. 2,000 each month without it significantly affecting your financial objectives.
Figure out your SIP returns.
A SIP calculator can help us determine how much money we should put into investments each month based on our target portfolio size once we are aware of our risk tolerance. When determining how much money needs to be invested each month for each year left until retirement, this calculator takes into account the initial deposit amount and the years until retirement.
The best feature of using this calculator is being able to see exactly how long it will take for your investments to start paying off by showing monthly contributions and returns over time.
Consult a financial advisor
It is imperative to get financial advice prior to making an investment in a systematic investment plan. You can find the best investment funds with the assistance of many financial experts. However, it would be best to take into account going to see your neighbourhood accountant or financial advisor to talk about your goals and figure out whether a systematic investment plan would be suitable for you.
Which Plan Is Better: Lump Sum vs. SIP Investment?
Lump-sum equity investments are less advantageous because a significant portion of your income is locked up in market-linked assets. If the investment strategy does not take into account your long-term objectives, you run the risk of losing a significant amount of money given the daily market fluctuations.
In an equity-linked ULIP plan or mutual fund scheme, it is possible that the specific fund in which you have made a sizable investment begins to consistently perform poorly for two to three years.
It may not be ideal if you have debts to pay off, such as personal loans, mortgages, or other loans, as a high inflation period like this could negatively impact your financial situation.
How Should SIP Goals Be Set?
Let’s discuss SIP objectives in the following list before discussing how to invest in SIP in India.
Risk profiling: The aim of SIP investments is to make sure that your portfolio develops a risk profile in accordance with your requirements and risk tolerance. Market-Linked Assets
Diversification: If you really want to get the most out of your investments, you need to diversify well across asset classes.
Diversification of assets becomes easier with SIP as it is a simple as well as flexible investment plan.
Connect SIP Plan to Bank Account: Typically, funds are automatically deducted from your bank account and invested in your SIP plans. This distributes a specific number of units from your fund portfolio based on the market value of your assets (Net Asset Value, or NAV) for the day.
Your bank should work in tandem with SIP. If it isn’t, you should speak with your bank’s relationship manager, who will set you up.
Conduct in-depth research Make sure the mutual funds you choose meet the following requirements:
The mutual fund has a sizable total corpus, or asset size. 500 crore rupees serves as a useful benchmark.
Although there are active mutual funds with less than Rs. 500 crore in assets, this is a good general rule of thumb to follow if you are a novice.
The duration of the mutual fund is at least five years (the longer, the better).
Select a reputable fund house at all times. In India, there are numerous fund families and fund houses, including Reliance, HDFC, SBI, Birla Sun Life, and others.
As a result, if you can identify any of them, you should be fine.
How Does the SIP Calculator Work?
This tool, which is based on Google Sheets and an Excel spreadsheet, can handle numerous tasks with ease. Your SIP calculator comes with interactive charts, investment tables, and summaries in a variety of themes. The All-In-One SIP Calculator is the name of this device. It can handle various investment calculator types, as the name would imply. Here are some examples.
- SIP with Inflation Calculate
- Lump Sum SIP Calculator
- Lump Sums Calculator
- Interest on Lump Sum SIP Investments Calculator
- Future Value Lump Sum SIPs Calculator
- SIP Mutual Funds Calculator
- SIP for recurring deposits with inflation
- Compounding Interest in a Lump Sum Calculator
- Fixed Deposit Lump Sum SIPs Calculator
- Certificates of Deposit SIP with Inflation Calculator
- Investment Lump Sums Calculator
- Calculator for Savings Lump Sum SIP with Inflation
- SIP calculator for the stock market
Conclusion
SIP investing is a better way to accumulate wealth than lump-sum investing, as it lowers the risk of volatility and offers returns on par with blue-chip stocks. A reputable SIP calculator can help investors weigh the advantages of monthly SIP investments in mutual funds against those of lump-sum or sporadic investments. Both small and large investors can benefit from it.
An innovative and simple way to invest in mutual funds is through a systematic investment plan. An investor is given the option to make fixed monthly or quarterly investments. The investor’s entire wealth-creation process is simplified by this investment strategy, which ensures discipline and regular investments in the best mutual funds.