What Is SIP?
Systematic Investment Plan – SIP
SIP is an investment plan that is done in a systematic approach in regards to acquiring money via investments made by people. A Systematic Investment Plan in basic terms is a plan which allows an individual to invest their funds into Systematic Investment Plan mutual funds in order to accrue a large sum throughout a period of time. This period of time is usually long–term. It is long-term with the intent of fulfillment of your goals so that a good amount of money can be collected to satisfy your requirements in upcoming years.
What use would an SIP plan be if it did not give you good returns! With this plan, you have the ability to invest your funds which are pre-determined into the mutual funds at consistent intervals with interval options of weekly, monthly, quarterly, etc. You have the liberty to choose a payment method that fits your convenience. A small amount is invested in an SIP plan on the market as well as into mutual funds. The deposit is supposed to be made at regular intervals until the time one chooses their term to end. One will invest into the SIP according to the financial goals they envision for the future. They have the ability to save money for retirement or personal entertainment such as vacations by investing the the plan.
Auto-Debit
Once you get started in investing, the sum amount of your investment money that you need to pay for that time frame can be automatically debited from your bank account. This money will then be put toward the mutual fund schemes that you choose. It is extremely easy in terms of regular investments as there is no concern for the lapse or cancellation of the SIP plan if you neglect to make the payments due to simply forgetting. They can be processed by instructing your bank to automatically debit the investment amount from your account during each interval.
Then, the investor is allocated a certain number of units which reflect the market rate. This is referred to as the NAV – net asset value. Each time your money gets put into the investment total, further units of the scheme will be placed in your SIP account. An SIP plan will be more fruitful and optimized if it has the intention of long-term investments. The investor has control with the fact that they can discontinue the SIP plan at any time they want; it is not mandatory to go through the entire period of the plan to get the returns. It can be continued at whatever point you want. The investor can even make the decision of whether they want to increase or decrease the amount of their investments at any point in the duration of the term. What is SIP without the control of the investor over the basic decisions? A large amount of returns can be accrued if investments are made for a long period of time.
Now that you know the answer to “what is SIP?”, let us see how to start one!
How to Start an SIP
1. KYC Yourself
The first and the most important step when starting an SIP is to be KYC registered. KYC refers to knowing your customer. You need to register yourself as KYC compliant so that your details can be verified and obtained by the fund company that you are going to be a part of, if you invest into an SIP plan. To finish this step, you need to fill out all the details that the KYC requires of you. They are as follows:
- Passport-sized Photograph
- Proof of Address
- PAN Card
- Proof of Identity
2. Fund Finding
You need to find a mutual fund that is suitable to you and that will fulfill your requirements and purpose for investing into SIP. You need to find a fund in accordance with your risk appetite so that you do not incur losses larger than what you can afford. SIP funds can be invested directly into asset management companies or through any intermediaries. You have to make a choice on what kind of fund you would like your money to be invested into, i.e. equity, balanced, debt, etc. You can invest into mutual funds offered by investment service companies that will also help you decide on the best fund for you.
3. How much?
Deciding on how much to invest into the mutual fund is a debatable question! But, once you figure out how much you want to accrue by the end of the term, it will help you determine how much you need to invest every month or year in order to achieve that mark. Basically, your financial goals will help you determine your financial investment.
4. When to Make the Payments
Deciding the dates for your payments is a very crucial step when starting your SIP. For this task, you need to select the investment time that you would like to make the investments on every month, every year or every quarter of the year. The mode of payment has to be decided upon next. Now, it can be extremely helpful if you set your bank account to auto-debit the money for the investment every month. In this case, even if you forget to do so, your bank will have your back. A manual payment option is also available.
5. Submission
The submission of your SIP form will be the last step before your SIP is kick-started. The form needs to be submitted to the AMC, or Asset Management Company, but if you have invested your money through an investment service provider, then the form will be submitted on your behalf. There is a due date to make the submission, so keep a tab on that.
