We’ve all heard our friends talking about SIPs, seen advertisements on TV about SIPs. But do we really know what they are and how to invest in SIPs? To pay less tax or to accumulate more savings or to form a discipline of regular investment, whatever your reason be, it’s essentialto know how to invest in SIPs. The beauty of SIPs is undeniably the flexibility of how less you can start with. Learn about all the what’s and why’s of investing in a Systematic Investment Plan (SIP).
Start Small in SIPs to Reap Big
What is SIP?
Before getting into how to invest in SIPs, you should know that SIP is one way to build a healthy wealth creation habit through which you invest small amounts of money, as low as Rs 500 ona monthly, quarterlyor annual basis, usually on a set date. It’s one of the safest and simplest ways to invest throughmutual funds.
Ideally, the best approachis to select a monthly SIP so you can plan your budget and expenses after paying for it. How you invest in SIPs will determine the returns you get in the long run.
How to Invest in SIP?
You’ve finally decided to invest in the world of mutual funds through SIPs.
Here’s the first thing to do -Identify and understand your big goals – home, retirement, education or anything else that matters to you. Look at your current income, debt status and dependants to realize the kind of risk you’d be willing to take.
After you’ve considered these things, study how to invest in SIPs, choose a plan online or offline and complete KYC formalities.
What are the Advantages of Investing in SIP?
The most significant advantage of SIPs is that you can start investing with an amount as low as Rs 500. If it’s your first time investing or you’re only trying this out, start small, nevertheless. If nothing else, the practice will bring financial discipline.
Find out how to invest in SIPs the right way and get higher returns than a regular fixed deposit (FD), so your total amount stays at par with the rising inflation. You will reap better long-term benefits than a one-time investment, thanks to power of compound interest. Another benefit of investing in a SIP is that you can withdraw your money with a single click in case of an emergency, unlike an FD.
How Much Should I Invest?
There’s no perfect amount to invest. The best thing about SIPs is that you can start investing from a lower amount and increase it later according to your financial goals.
How is SIP Investment and One-Time Investment Different?
Other than the obvious ‘how to invest in SIP’, this is the most common question first time SIP investors are likely to ask. Here’s how these two kinds of investments are different:
|One-Time Investment||SIP Investment|
|Pay lump-sum amount for the entire duration||Fixed investments for a fixed duration|
|Better earnings only when the market is high||Better earnings when the market is low|
|Huge losses can occur during market crashes, which happen frequently||Invested amount stays protected if & when the market crashes|
How to Choose a SIP?
The best way to find out the right SIP for yourself is by doing thorough research. Whichever SIP you shortlist, check its past returns before deciding. When you’ve done so, ensure that your chosen SIP checks the following boxes:
- Asset Size Benchmark – Consider ₹500 Crore as a realistic yardstick before investing in the shortlisted SIP. Anything below this is not a wise decision.
- SIP Fund House–It’s crucial to check the reputation of the SIP Fund House before investing as it will tell you everything about how well they handled market lows and highs in the past.
- Duration of SIP – Go as far back as 5 years and see how the fund performed across markets. From a tax, risk and return perspective, the duration of SIP is crucial.
What’s the Best Time to Invest in SIP?
When it comes to investing in SIPs, there’s no ideal time to do it. More than when, it’s about how long you’re investing for. The best way is to set your plan with automated transfers, so payments are made timely and automatically, leaving less room to delay or change your mind at the time. Remember, the trick is to start small and reap bigger returns.
Can You Reduce or Extend Your SIP Duration?
To reduce the duration of your SIP, fill in a request online or send an application for the same before the next SIP is due. There could be a minimum tenure that needs to be completed before you can make such a request. For an extension, wait till the end of your SIP duration, and then request to add to the tenure.
SIPs are an excellent way to get closer to your financial goals, especially if you’re just beginning to plan investment. SIPs will workin a disciplined manner towards getting a high return and create long-term wealth for you and your family.