What is SIP?
To start with SIP means a systematic investment plan . It is the easiest way to invest in mutual funds at any intervals viz. weekly, monthly or quarterly as per preferences. Investing directly in the stock market can be risky, as it may need careful study and knowledge to predict the correct timing for investment as well as liquidation. However, in the SIP model, this is not the case, as it protects the investor in market downfalls and at the same time let them enjoy the market blossoms. A SIP model is nothing but a method where a fixed amount is auto-debited from the investor’s bank account and a certain amount of mutual fund units are bought based on their price on the date of investment. This way when the market is low, more units come into investor’s portfolio which later at the time of liquidation can be sold handsomely. This article will give you all the information needed on how to start a SIP (both online and offline) along with its benefits.
How to Start SIP?
Savings are important in financial planning , but the most important aspect in it is how you save them instead of how much you save? Lump sum saving is very difficult as it hampers your liquidity and day-to-day operations hence, applying to save regularly can be perfect for building wealth. However only savings does not help the cause, as keeping money ideal in the savings account is a bad idea. Here SIP comes into the picture, which helps you save money as well as keeps you on par with the inflation rate. Let us check the step by step process of how we can start investing in SIP
1. Register for SIP:
All you require here is to visit an online registration website such as Orowealth and sign-up with them. Once you sign-up, there is a simple application form, where personal details are asked. Thereafter you will have to create a User ID & Password for this account. Then remains the final task of filling in the bank details through which the SIP amount will be deducted, to complete the registration process.
2. KYC Requirement
To invest in mutual funds through SIP one has to comply with the ‘KYC’ requirements. The essentials for KYC are Pan Card, an address proof, a photograph & a cheque book. One final step in KYC is in-person verification. This KYC is a one-time process and you need not to require for any subsequent investments.
3. Choose the SIP:
Now we come to the business end of the process, where you need to choose the correct SIP which fulfills your needs. Depending upon your risk taking capacity, funds can be allocated. In the case of high-risk tolerance, equity-linked funds can be preferred and in the case of low-risk acceptance, debt or balanced fund could deem ideal.
Minimum SIP Amount
There are no limitations on how much you should invest through SIP. However, if you have a target say vacation, car, corpus for property down payment etc. in mind otherwise for investment purposes, any amount from Rs. 500 or Rs. 1000 and above could deem sufficient.
When to invest?
For salaried persons, T+2 is the ideal date, T being the date of salary received in the bank and for others depending upon your business needs and funds availability the date could be set.
How to Start SIP Offline?
You can also invest in SIP through an offline method. The KYC compliance is necessary here too, and the same can be completed offline. The step starts with approaching a representative from fund house or any financial advisor who provides such services. Once the KYC formalities are completed, fill in the application form with your personal details. While filling the details make sure the email id & mobile number are entered correctly as they are the only means of communication and for subsequent investments. Once the form is complete, attach the copies of Pan Card and Aadhar card for identity and address proof. In addition to that one cancelled cheque along with a bank mandate form is to be enclosed to the application form. Once all the above formalities are completed, a folio number is allocated to the investor for that particular investment. Thereafter the investor receives a statement of his/her investment for every month just like a bank account.
Things to keep in mind while starting SIP
An investment without objective is a bird without wings. This is a first and foremost thing to be kept in mind while starting a SIP. An objective gives you the outline, & the necessary efforts required to achieve it. If there exists no objective, then questions like, how to invest or which fund would be optimum go unanswered. Therefore it is necessary to have an objective.
b. Risk Factor:
Another important aspect to look at while investing in SIP is the risk factor. SIP investment comes with innate risk, however, the level of risk is divided among highly risky, moderately risky & low risk funds. Depending upon the age of the investor, the objective, term of investment and liquidity requirement, the investment decision should occur.
c. Payment instructions:
Another important point to be considered while investing in SIP. Payment instruction is nothing but the date on which the money will be deducted from your bank account. In order to avoid default, the instruction should be on the date when the account has sufficient balance. For example, if your salary is credited on the 1st of every month, the payment instruction should be made on any day after 1st after giving due regards to your other EMI or cheques issued.
d. Tax savings:
Many funds provide the option of availing tax benefits, however, this advantage comes with a price of lock-in. A lock-in is nothing but blockage of funds for a fixed period of time commencing from the date of investment. This option hinders your liquidity, therefore if you are thinking of building a corpus for an emergency, this option is a big no.
Benefits of SIP
Is SIP really that beneficial let us take a look.
• Rupee Cost Averaging :
The stock market is the definition of volatility, where timing is the essence of a transaction. However, many people might not be able to understand the timing let alone match it. SIP investment helps you purchase more units of a mutual fund when the market is down and vice versa. Thus Rupee cost averaging eliminates the need to time one`s investments and protects from market volatility.
• Wealth Accumulation:
A small amount of savings at regular intervals is key to wealth building. The returns get the benefit of compounding where the invested amount and the accumulated return are pooled together to gather wealth.
• Easy Exit & Liquidity:
The units (other than lock-in) are highly liquid. They can be sold at the prevailing rate and the money is deposited into your account within 2 working days. Further, the SIP can be stopped at any intervals and resumed as and when required.
• Tackling Inflation:
Today’s Rs. 100 is tomorrow’s Rs. 99 and so on. The power of money decreases with time due to inflation. Therefore, to keep today’s 100 intact, the investment must be chosen wisely and keep the money future ready. SIP method helps in keeping the inflation at bay by keeping it on track with the economy.