The more you grow older, the more responsibilities you have on your shoulder. You are not only responsible for your finances, but your family’s as well. Unfortunately, when there are tons of expenses to take care of, you need more than your salary to depend on. You need a sizeable savings fund you can fall back on in times of need.
Investment is one of the fastest ways to create a sizeable savings fund. However, you might face some issues when you are just starting out your investment journey. Much to your relief, investment can become easy if you learn how to invest in SIP online.
What is SIP Investment?
A Systematic Investment Plan (SIP) is a way of investing in a mutual fund that allows investors to invest a fixed amount of money regularly instead of lump sum payment. SIP is usually monthly or quarterly but some funds also offer daily SIP option.
How to Start SIP Investment?
Gone are the days when you had to visit a mutual fund house in the scorching heat of the sun to fill up the application form. Here’s how to invest in SIP online:
Step 1: The first and foremost step to learning how to invest in SIP online is to choose your AMC (Asset Management Company) and get your KYC done.
Step 2: E-KYC includes the input of basic information in an online form, uploading of documents such as your address proof, PAN Card, Passport size photo and in-person/Video call.
Step 3: The final step is registration. Simply visit the fund house’s website and register to create an account.
SIP: Benefits & Disadvantages
The following enlists the major advantages and disadvantages you should consider before starting to invest in SIP:
|SIP Benefits||SIP Demerits|
|SIP is ideal for every type of investor as it’s very economic (minimum SIP starts with Rs 500 only)||SIP is not ideal for investors with unpredictable and inconsistent cash flows|
|As investment is made automatically and regularly post-authorization, you become a disciplined investor.||SIP is a rigid investment product as there’s relatively less control|
|The basics of SIP investment say there’s no risk of making an investment at the wrong time as the returns are averaged out in SIP.||As the returns are averaged out in SIP, you wouldn’t be able to earn higher returns when the market is booming.|
How to Invest in SIP: Things to Consider
Understand your Financial Requirements
What do you need your savings for? Do you have a specific goal in mind? Whether it is your child’s education or securing your retirement life, you should have clarity as to why you are investing in SIP. Are you investing in SIP to meet your long-term goals? If yes, how much do you think you need to meet your goals?
Once you have decided on this amount, you can get started. If you are finding it a tedious task, doing some research would always help you estimate the amount you would be required to meet your financial goals.
How Long Do you Want to Stay Invested?
Knowing your investment tenure is as important as knowing the investment amount when you are learning how to start an SIP investment. How long do you wish to stay invested? Although there is no minimum investment tenure, it is highly recommended that you stay invested for
Choice of Fund
Your choice of funds matters the most. The last thing you want (if you’re a conservative investor) is to invest your money in high-risk funds. At the same time, investing money in low-risk funds if your goal is to earn high returns is no good.
That’s why it’s essential to choose a combination of funds that don’t only provide you high returns but also maintain some sort of investment safety.
Why is it important to invest in SIP Online?
Now that you know how to start SIP investment, let’s understand the importance.
SIP encourages Savings
You can reach your savings goal manually by controlling your expenses. However, it might not be a sustainable approach, especially when you are sacrificing too much to meet your savings goal. In addition to that, several possibilities might come as an obstacle. One of the most significant would be overspending.
However, there’s a common fix to these numbers of problems – SIP. When you are learning how to start SIP online, it’s important to know that you don’t have to invest in it manually. The amount will be deducted automatically from your bank account, ultimately inculcating a savings habit without meagre effort.
You Reduce your Risks Through Rupee Cost Averaging
Risk is an important factor to consider when you are learning how to start SIP online. Even though the money you invest is used to purchase market-linked instruments, you can reduce the market risk through Rupee Cost Averaging. This means you can get fewer units when the market is underperforming and get more units when the market is performing well. Therefore, the cost is averaged out when you start a SIP.
Read More: Difference Between SIP and Mutual Funds
How to Invest in SIP: FAQs
Yes, you can pause or cancel SIP anytime without paying any charges. However, the process to do that would differ according to the mutual fund house.
There is no minimum investment tenure in SIP. However, the basics of SIP investment, as suggested by the expert investors, is that you must invest in SIP for a minimum of 5 years to gain significant returns.
A SIP account involves an arrangement designed by the fund houses to allow individuals to invest a pre-determined amount at regular intervals into their choice of funds
NAV stands for Net Asset Value. The NAV of a share refers to the price at which a unit of a mutual fund can be bought or sold. Therefore, NAV decides the number of units you can buy. If the NAV is high, one can buy fewer units of the SIP. Likewise, when the NAV is low, one can buy more units
You must complete a redemption form online on the mutual fund house’s portal to redeem SIP mutual funds. You would be required to submit your folio number and PAN card to proceed.
You can use a SIP calculator to calculate your SIP returns. A SIP calculator is a quick way to calculate your returns in a matter of clicks.
You cannot change the existing SIP amount; however, you have the option to start a new SIP with a new investment amount.