Nothing has influenced investors in recent years about investing as much as systematic investment plan or SIP. So much so that may investors unknowingly assume SIP to be a scheme than a technique to invest in mutual funds.
The extent to which SIPs have driven into the minds of investors is such that many believe that when investing in SIPs there is no way they can lost money-it is one way ride to wealth. Before we proceed further, you should know that it is recommended to invest through SIPs than make lump sum investments.
Yes, SIPs are simple to understand and come with an easy-to-understand idea-you invest a fixed sum regularly in an equity fund, regardless of market conditions, and over the long-term, you end up buying more units when the market are down and fewer when they are up.
Your average prices of acquisition is lower than what it would have been had you tried to time the market. More importantly, SIP makes investing convenient and hassle free.
Starting an SIP
Typically, every investor has different needs and concerns, which naturally make it nearly impossible to generalize a single method of investing for all. You first need to be KYC compliant to get started with investing in mutual funds through SIPs, for which you need to have a PAN Card and a bank account, They, all you need is to choose a fund scheme to invest in and leave instruction with your bank for auto debit into the investment for as long as you instruct them to. You are then allocated a certain number of units based on the market value of funds (called NAV or net asset value) for the day when your money is debited.
Step- 1: Risk profile and investment objective
Before you start investing, understand your comfort when it comes to risk-your ability to take losses as well as the risk that is inherent to the investment your make. Likewise, every investment has a stated objective, which is what it works towards. For instance, your goal to save money for your daughter’s education 10 years from now is a long way to go and should find way into an investment that is meant to work with such a timeframe.
Step-2: Selecting a fund
There are several schemes to choose from. Select a scheme based on your risk profile and investment objective. Next, look for the fund’s performance track record and history-go for a scheme with a sound history and performance over different market cycles and decide accordingly.
Step-3: SIP Date
You can choose from multiple dates for SIP investment per month. Although the dates when you can invest very, choose a date that is convenient to your depending you your bank balance.
Step-4: SIP duration
Technically, you can initiate an SIP for as long as you feel like. Match the duration of your investment with your financial goal and consider an SIP for that many number of years.
Step-5: Online and Offline
You can invest online or offline in a SIP, depending upon what is more convenient to you. The convenience of SIPs is that one has to give a one-time standing instruction and money gets debited automatically from your bank account. There is a choice to invest through the AMC’s website or through a distributor. You could also invest through online intermediaries and through the mutual fund platform offered by stock exchanges- BSE and NSE.