A Systematic Investment Plan (SIP) is a method to invest a fixed sum of money in a mutual fund at regular intervals. Select the amount, date, and payment method online. It can mix regular savings with financial objectives.
SIP is a method of investment and not a mutual fund. The money goes to a mutual fund scheme you select. The returns are tied to market performance and are not fixed.
What is SIP?
A SIP is an investment where a fixed sum is invested regularly, usually monthly or quarterly. This amount is used to buy units in a mutual fund at the current Net Asset Value (NAV).
Suppose a person starts a monthly SIP of ₹2,000, then he/she will invest ₹2,000 every month. If the NAV is lower, then more units can be bought for the same amount. If the NAV is higher, it will be able to buy fewer units. This is called rupee cost averaging.
SIP can also help in financial planning since it inculcates a habit of regular investment. It is not a removal of market risk and does not guarantee returns.
How to Open SIP Online
- Establish a financial goal
First, determine the goal of the investment. It could be a future educational expense, a home purchase, retirement, or some other long-term goal. A clear goal can help to decide the time and amount of investment.
Analyze your income, expenses, existing investments, and emergency savings, and then calculate your SIP amount.
To invest in mutual funds, you need to complete the KYC or Know Your Customer. Keep your identity, address and bank details handy. Digital KYC and account verification may be possible online.
Choose a scheme as per your investment objective, risk, time horizon and portfolio. Mutual Funds can invest in equity, debt, hybrid or any other securities.
Please go through the scheme-related documents, risk-o-meter, expense ratio, exit load and any other costs, if applicable. The risk-o-meter tells you how risky a scheme is.
Choose an amount that works with your regular cash flow. Then select the SIP date and frequency provided by the platform.
For example, a person having a monthly income can opt for a monthly SIP after the date his salary gets credited. This keeps the payment in line with the home budget.
You may be asked to agree a bank mandate or other permitted payment method online. This makes it easy to collect the SIP instalment on the date you choose.
Before confirming, check bank details and mandate conditions.
Before starting the SIP, check the fund name, plan type, amount, frequency, date and payment details. The SIP can then proceed as planned.
Direct or Straight Mutual Fund Plans
Mutual funds may have direct and regular plans. No distributor is involved in buying direct plans, and regular plans are bought through an intermediary. Their costs are structured differently.
According to SEBI, direct plans generally have lower expense ratios as they do not include distributor commissions. Investors should look at the features and costs of both options before deciding on a plan.
How SIP Helps in Financial Planning
SIP converts a financial goal into a regular investment process. For example, an investor with a long-term goal can decide on an amount per month and review progress at predetermined intervals.
It can also reduce the need to make a new investment decision each month. Review the SIP as and when income, expenses, goals, or risk capacity changes.
Don’t pick a fund based on its recent performance. Past performance is no guarantee of future results. Mutual Funds are linked to the market and are subject to risk.
Points to Check
Before starting an online SIP, check the following:
- Your financial goal and timeframe
- How much can you put in regularly
- The investment objective of the mutual fund
- Risk-o-meter of the scheme
- Other charges & expense ratio
- Direct or regular plan
- SIP date and mandate for payment
- Exit Load & Tax Rules
Conclusion
How to start SIP online? To start SIP online, you need to follow the steps mentioned below. Set a goal, complete KYC, select a suitable mutual fund scheme, select the amount and date to invest, set a payment mandate, and confirm the details. You can maintain discipline with a financial plan through SIP, but returns are not assured. Looking at it regularly, you can ensure that the investment remains in line with your changing goals and finances.
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