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.
Understanding SIP basics
Before we spill the beans on how to invest in SIP, isn’t it better if we could spare a moment to understand what it is and how it works?
So, without further ado, a Systematic Investment Plan (SIP) is a type of mutual fund that allows investors to invest a fixed amount of money regularly. This can be once a month, once a quarter, instead of being one lump-sum investment. Being a mutual fund scheme, the investment is made into market-linked instruments such as shares, or government bonds, as per the wish and risk appetite of the investor.
SIP works like a mandate and a Recurring deposit, where you give access to your bank to invest in SIP on your behalf. All the reasons why SIP is becoming popular among folks. Even if you are someone who doesn’t know how to invest in SIP, you have nothing to worry about market volatility. The returns may be market-linked, but they are averaged out. In simple words, if the market is performing poorly, you can buy more units of the stock, and if it grows, you can buy fewer units. In a nutshell, it doesn’t affect your returns significantly.
Moreover, SIP is loved by investors because of the power of compound interest. Compound interest is the interest earned on interest.
Let’s explain compound interest with an example before we tell you how to invest in SIP.
Kshitiz decided to invest Rs 6000 in a SIP scheme every month for a span of 10 years. He earns a 10 % expected rate of return on it.
Now his yearly investment is INR 72,000, and the interest due to him is 7200. With compound interest, the investor doesn’t only earn interest on the principal amount in the following years but on the gains on the principal amount as well
This is to say, Kshitiz won’t earn interest on INR 72,000 the next year, but on INR 72,000 = 7200 = 79,200.
In a nutshell, your money grows gradually just as your investment earns returns. Not to mention your returns also earn returns. That’s why you should know how to invest in SIP.
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. Internet is definitely a godsend as you can invest in SIP online. Here’s how to invest in SIP online after you are familiar with the basics of SIP investment:
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: The second step in learning how to invest in SIP is e-KYC. It is mandatory for SIP investment. Various AMCs provide e-KYC services. 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.
Easy peasy, right? That’s how you start an SIP investment
How Much Can I Invest in Mutual Funds via SIP?
The first step when it comes to knowing how to invest in SIP online is to understand how much you are going to invest. The amount you invest would depend on your financial goals. Other than that, you can always start by investing a minimum of INR 500 (to meet most SIP minimum investment criteria). As for the maximum amount, there is no limit.
What is an Asset Management Company?
Starting with the basics of SIP investment, an asset management company (AMC) is a company that invests collected funds from clients in various investments, including bonds, stocks, bonds, master limited partnerships, real estate, mutual funds and more.
The Right Way to Grow Your Money: Pros and Cons of SIP
When you are learning to invest in SIP, you might as well know the pros and cons of investing in SIP, which is an essential part of the basics of SIP investment. Here are they.
|SIP Pros||SIP Cons|
|SIP is ideal for every type of investor. You can start with a minimal investment amount of INR 500 once you know how to invest in SIP.||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. As the investment amount is fixed, you will have to start afresh SIP if you wish to change the amount.|
|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. (One more reason to know how to invest in SIP and get started.)||As the returns are averaged out in SIP, you wouldn’t be able to earn higher returns when the market is booming.|
How to Set SIP Goals?
An essential part of knowing how to start an SIP investment is to figure out your SIP goals. You can use the following tips to set your SIP goals.
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
Your choice of funds matters the most. Even though it is the portfolio manager that invests your money, you still have a say in the kind of funds you want to pick. 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 a big NO. 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.
Top SIP Mutual Funds in India for 2022
If you are wondering how to start SIP investment, you begin by choosing one of the top SIP mutual funds in India.
|Fund Name||Return p.a.|
|Quant Active Fund||33.04% p.a.|
|PGIM India Flexi Fund||24.45% p.a.|
|Quant Large and Mid-Cap Fund||23.5% p.a.|
|Mirae Asset Emerging Bluechip Fund||22.36% p.a.|
|Canara Robeco Emerging Equities Fund||20.05% p.a.|
|Kotak Equity Opportunities Fund||19.65% p.a.|
|UTI Flexi Cap Fund||19.64% p.a.|
|SBI Focused Equity Fund||19.4% p.a.|
|Canara Robeco Bluechip Equity Fund||18.83% p.a.|
|DSP Flexi Cap Fund||17.61% p.a.|
Why is it important to invest in SIP Online?
Now that you know how to start SIP investment, let’s understand the importance.
Inculcates a Savings Habit:
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.
Maximize your Returns through the Power of Compounding:
Learning how to start SIP online is essential if you want to maximize your returns. You can maximize your returns through the power of compounding. Compounding refers to interest on interest. This means that if you invest 50,000 in a year and earn an interest of INR 5000. Next year, your interest will be calculated at INR 55,000, not 50,000.
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.
Now that you know the advantages and how to start SIP investment, you’re all set to grow your money. Money won’t grow on trees for you, but it will grow; you have SIP to thank for.
Read More: Difference Between SIP and Mutual Funds
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.
Even though SIP involves investment in market-linked assets, the returns are not significantly affected according to the concept of averaging out. Averaging out in SIP means if the market is performing poorly, you can buy more units of the stock, and if it is growing, you can buy fewer units. (Here’s to giving you a big reason to know how to invest in SIP). A good enough reason for you to learn how to start SIP online.
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.
Q. How to calculate SIP returns?
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.
Q. How to increase the SIP amount?
You cannot change the existing SIP amount; however, you have the option to start a new SIP with a new investment amount.