Over the past decade, SIP or Systematic Investment Plans have become immensely popular. There’s a reason for that, of course. SIP has three main advantages — it is easy to understand, it doesn’t require a lot of effort, and it provides decent returns. What more could we want?
Because of its convenience, SIP is a good instrument for beginners to start their investment journey.
So how does a SIP work? How can you start your SIP account online? Let’s find out!
What is SIP?
SIP involves investing a fixed amount of money at regular intervals. For example, if you start a monthly SIP of Rs 5,000, it means that the amount will be debited from your account and invested on your behalf. The choice of instrument is yours, of course. You can choose from a range of different types of mutual funds.
SIPs offer a lot of customization. You can invest different amounts, in different schemes, at different intervals and for different time periods. It is designed to fit seamlessly into the lives of investors. Everything is automated. You won’t have to do much on your own.
You can start a SIP with as little as Rs 500 per month, and you can opt for weekly, monthly, quarterly or yearly intervals.
Benefits of Systematic Investment Plan
- Rupee cost averaging
Prices in the share market keep fluctuating. Investing a fixed amount at regular intervals ensures that the effects of these fluctuations are nullified, and you get an average stable price in the long run.
- Consistent saving habit
Oftentimes, we find it hard to save money. Random expenses keep cropping up. As long as the money is accessible in your account, it tends to get spent.
SIP solves this problem by debiting a fixed amount from your bank account every month. Because the process is automated, you’re able to grow your savings consistently. In other words, as the money is taken out of your account, there is no way it can be spent!
- Power of compounding
This is only visible in the long term.
It happens because the amount you earn every year gets added back into your account and reinvested. Over time, this extra amount that gets added can become even greater than the original investment amount!
How can you open a SIP account online?
Opening a SIP account and starting your investment journey has never been easier. Using the following 4-step process, you can open your SIP account and start your SIP investment journey.
And the best part?
You can do it all from the comfort of your house!
Step 1: Complete KYC
KYC or Know Your Customer is a mandatory requirement by SEBI. If you want to invest in any kind of financial asset in India, be it shares or bonds or mutual funds, you will have to complete your KYC.
But don’t worry! If you complete your KYC once, you won’t require it for other financial assets.
For KYC, you require 3 main documents — your identity proof, your address proof and your bank account details. You can use your PAN and your Aadhaar card respectively. Please provide the details of the bank account that you want to use for investment purposes. Apart from that, there is generally a video call which is used to authenticate your details.
Step 2: Activate the account
Once the KYC process is completed, you can register for an account online. Simply fill out your details to complete your onboarding process. This is generally completed within 24 hours.
After your account is activated, your login credentials will be generated. You can use that to access your account.
Step 3: Select the details of the SIP
This is the most important step. Opening an account is a standardised process, but choosing a mutual fund scheme for a SIP is much more personal. You should think about your own investment goals and your risk appetite. Think about how much you can invest per month and how long you want to invest.
The choice of the scheme will depend on your risk appetite. If you’re risk neutral, you can opt for flexi cap funds or blue chip funds or index funds. If you’re risk-loving, you can opt for small-cap funds.
Once you have decided what your investment goal is and how much money you wish to generate at the end of the process, the rest is just logistics. Most mutual fund investment platforms will provide free access to an online SIP calculator that you can use to figure out the specifics.
For example, if you are aiming for Rs 1 crore after 20 years, with an average growth rate of 10% per year, you’ll need to invest Rs 14,000 on a monthly basis.
Step 4: Submit the transaction
Once all the details are finalised, you can submit the transaction. The first SIP instalment will be debited from your account on the scheduled date, and the same will be repeated every month.
Please note that you can pay for the SIP using a National Automated Clearing House (NACH) mandate. This will require an additional step on your part to approve the mandate online. It’s a one-time process and the money will get deducted automatically after that.
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Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
