How to start SIP investment? A Guide to Start SIP Journey
Investing is an art, and systematic investment planning (SIP) is one of the most sought-after and effective techniques for building wealth over time. Systematic Investment Plan, or SIP, is a method of investing in mutual funds that can serve as a backbone for anyone looking to create wealth over the long term. This method has gained popularity due to its simplicity and the financial discipline it inculcates.
Whether you’re saving for retirement, looking to finance your child’s education, or aiming for any other long-term goals, SIP can be your vehicle for reaching these milestones. In this guide, we’ll dive deep into the world of SIP investments, discussing how to start SIP investment, the intricacies and providing practical and safe advice to get you started.
- What is SIP Investment?
- Benefits of SIP Investment
- Step-by-Step Guide: How to Start SIP Investment?
- Practical and Safe Investment Tips
1 What is SIP Investment?
SIP stands for Systematic Investment Plan. It is an investment strategy where you invest a fixed amount of money at regular intervals (monthly or quarterly) in a mutual fund scheme. SIP investments enable investors to reap the benefits of compounding and rupee cost averaging, which can result in substantial returns over a long period.
2 Benefits of SIP Investment
- Disciplined Saving: SIP instills financial discipline as you commit to investing regularly.
- Compounding: The earlier you start, the more time your money has to grow as the returns are reinvested.
- Rupee Cost Averaging: Regular investment means you buy more units when prices are low and fewer when they are high, averaging out the cost over time.
- Convenience: Automated payments make the investment process hassle-free.
- Flexibility: You can start with a small amount and gradually increase your contribution.
3 Step-by-Step Guide: How to Start SIP Investment?
Set Clear Financial Goals
Before you start investing, it is vital to identify your financial goals. Are you saving for your child’s education, a new home, retirement, or something else? Knowing your goals will help you decide the investment duration, amount, and the type of mutual funds that suit your needs.
Understand why you want to invest. Be it buying a house, securing your retirement, or setting up an emergency fund, knowing your goals will help in selecting the appropriate mutual fund schemes and tenure for your SIPs.
Understand Your Risk Tolerance
Assess your risk appetite – are you conservative, moderate, or aggressive when it comes to handling investment risks? Understanding your risk tolerance will help you choose the right category of mutual funds.
Your investment decisions should align with your risk profile. Younger investors might afford to take more risks and can consider investing in equity mutual funds, while older investors might want to preserve capital by opting for debt funds.
Research and Choose a Mutual Fund
There are various categories of mutual funds including equity, debt, hybrid, or solution-oriented schemes. Based on your risk tolerance and financial goals, research and pick the mutual funds you want to invest in. Look at their past performance, the experience of fund managers, portfolio constituents, and expense ratios. Websites like Morningstar and Value Research Online can be helpful resources.
Open an Investment Account
To invest in mutual funds through SIP, you need to open an investment account with a mutual fund company or through brokerage firms, financial institutions, or investment apps. You would need your identity proof, address proof, bank account details, and PAN card for KYC (Know Your Customer) process.
Decide the Investment Amount and Frequency
Decide how much you want to invest in SIP. It can be as low as Rs. 500 per month. Also, choose the frequency – monthly or quarterly. Make sure that the amount and frequency are aligned with your financial goals and budget.
Analyze your monthly expenses and income. Allocate a portion of your savings towards SIP. Ensure it doesn’t strain your finances and can be maintained over a long period.
Set Up an ECS (Electronic Clearing Service) Mandate
To automate the SIP investment process, you need to set up an ECS mandate which allows the mutual fund company to auto-debit the SIP amount from your bank account at the predetermined intervals.
Complete KYC Process
To invest in mutual funds, you need to be KYC compliant. Submit a KYC form along with identity proof (Aadhaar, Passport, or Driving license), address proof, PAN card, and a photograph. Some platforms enable e-KYC, which can be completed online.
Once KYC is complete, you can start investing through the mutual fund’s website, a bank, broker, or fintech platforms like Zerodha, Paytm Money, and Groww. Choose the mutual fund, enter the amount, select the SIP option, and choose the frequency (monthly, quarterly).
It’s crucial to keep an eye on the performance of your investment. Use the mutual fund’s website or app to track the growth. However, avoid being influenced by short-term market fluctuations.
To know more, check out our blog, “Breaking Down the Differences: Paytm Money vs Zerodha“.
4 Practical and Safe Investment Tips
The sooner you start, the better. Starting early allows your investments more time to grow through the power of compounding.
Don’t put all your eggs in one basket. Diversify your investments across different asset classes and mutual fund schemes to spread the risk.
Increase SIP Amount Periodically
Consider increasing the SIP amount annually or whenever your income increases. This is known as a step-up SIP and can considerably enhance your corpus.
Top-Up Your SIP
Whenever you have extra income or a bonus, consider topping up your SIP. This can significantly boost your corpus over time.
Avoid Timing the Market
SIP is designed to benefit from rupee cost averaging. Stick to your investment schedule irrespective of market conditions.
SIPs work best when invested for a long period. Have a long-term investment horizon of at least 5-10 years.
Consult a Financial Advisor
If you’re unsure about choosing the right mutual funds or need help with financial planning, consider consulting a financial advisor.
Review and Rebalance
Review your portfolio at least once a year. Rebalance if necessary to keep it aligned with your financial goals and risk appetite.
Starting an SIP investment is a wise and disciplined approach to wealth creation. It is relatively simple, but requires consistent effort and a long-term perspective. By setting clear goals, understanding your risk tolerance, choosing the right mutual funds, and following safe investment practices, you can navigate your way to financial prosperity through SIP investments. Remember, in the world of investment, patience and discipline are key. Happy Investing!