How to start SIP investment

Feb 14, 2020 by

SIP or Systematic Investment Plan has become a popular choice of investments for many investors over time. The reason behind this popularity is the many benefits SIP offers. As the name suggests, SIP allows the investors to keep investing in a systematic and disciplined manner. Under this investment plan, the investors can invest a small amount of money at fixed but regular periods. This assures the investors to buy more units when the price is low and less when the price is high. After every SIP Investment, some units are added to the investor’s account. The policyholders get to choose the tenure of the plan and they can stop investing as per their convenience. In order to start investing in SIP, let’s discuss the procedure.

What is SIP?

People often ask, What is SIP and why should they choose it? Systematic Investment Plan is a way of investment in a mutual fund. It is commonly called SIP. It a very easy and flexible method of investing as the money gets auto-debited from the bank account of the investor and gets invested in a particular plan. This method is the best for tax-saving investments. The investor is assigned to a specific number of units respective of the current market rate for the day.

How to start SIP investment

SIP investment can help you when you want to invest a big amount, but you don’t have the full sum at once. There are many SIP mutual funds in the market. Choose a fund house which gives the offer of SIP investment. Open an account there. Give your bank account details where the SIP payments will be debited from.

You can invest in SIP by either visiting the nearest branch of SIP provider or you can complete the whole procedure online. It is easy to invest through SIP. you should consider following the steps given below:

Step 1: Complete your KYC formalities which include documents and in-person verification.

Step 2: Register for a SIP

Step 3: Select the investment amount and tenure for the SIP

Offline SIP Investment

You have to be KYC (Know Your Customer) compliant to invest in any plans, through SIP or any other fund. The necessary documents for this are PAN card, address proof such as Aadhaar card, passport, voter ID, utility bill, driving licence, etc. You also need photographs and your bank details, mainly the cheque book.

Online SIP Investment

Go to the website of the fund house, which offers eKYC or electronic KYC. You need to put the details like your name, age (date of birth), contact details, etc. You need to upload the soft copies of the documents to support the details given by you. They would schedule a verification of your identity.

You can simply use your Aadhaar card to ease the process. You just need to enter the Aadhaar number. An OTP will be sent to the linked mobile number. You need to enter that OTP. Your basic details will be filled automatically. No verification is needed in this process. Aadhaar card-based information narrows your yearly investment up to Rs. 50,000 only. You need to provide the PAN card details.

You should give a thought about some important concerns like how much or where to invest. You can invest for as long as you want, but it is better to invest through SIP with longer tenures. You should set the date of investment near the date when your salary comes in the account. Experts say an equity-linked plan has a higher risk than debt or balanced funds. Checking up to the various funds in the market can help to choose as well.

How to calculate SIP returns

You can use the SIP Calculatorto calculate the return. This can be found online. The calculator uses the XIRR formula (Date, Value, Guess). Or you can use the following formula to calculate the return by yourself :

“((1+absolute rate of the return)/^(365/number of days))-1”

There is another process to calculate the returns with the Microsoft Excel program. The following steps can be used for that:

  • Type all the dates of the SIPs on one column.
  • Put the amounts corresponding to the dates putting a minus sign before them. The minus sign shows the efflux of the money.
  • Put the market value of the whole amount of your units and the date you want the return under the dates and the amounts on the respective columns. Don’t put the minus sign before the market value as it shows the inflow of cash.
  • Open the XIRR function on a blank cell and give the details in the fields Value and Date. Leave the Guess field blank and click OK.
  • Multiply the result by 100 and you get the return on the date you want.

Advantages and benefits

The main advantage of SIP Investment is that you can gain more by investing in small amounts. Some more benefits of SIP investment are:

  • It is not very easy to get the hold of the right timing in case of investments. You can not tell when the price in the stock market will be high. With SIP, the risk of getting a lower price or losing the share decreases.
  • You don’t have to invest big amounts.
  • With more investments, the return amount gets higher as it is calculated via compound interest.
  • With SIP, you have to invest the amount on a regular basis. This helps you to be a disciplined investor.
  • SIPs are best when invested on a long-term basis, but you can end the plan before the tenure ends.

There are many plans which offer the scheme for investment through SIP like HDFC small cap fund direct growth, SBI PSU Fund, DSP Tax Saver Fund, etc. You should consider checking the past performances of the market. Go through the history of the fund houses to choose the suitable option.

People who don’t know anything about mutual funds or the schemes should start with the SIP investments. There are some of the best plans for SIP when you want to invest in a tax-saving plan. ELSS (equity-linked saving schemes) and debt funds are some of them. SIP is generally offered to the people who don’t have enough money to go through a long-term plan. The SIP Investment method is a very easy investing option. It is not a mutual fund, it is a procedure to invest in a mutual fund. This usually allows small investments to grow into a huge stack of wealth. Millennials use this method often.

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