What Is A SIP?
A SIP ( Systematic Investment Plan ) is an investing way that has taken the middle stage ever since the mutual fund industry has observed rapid growth. SIP is one of the ideal forms of investing in mutual funds and enables an investor to invest regularly thereby building on financial discipline. Systematic Investment Plan is a planned way of investing which benefits to inculcate the savings nature in an individual.
In SIP, an individual is free to prefer the frequency of investments (such as quarterly, monthly or weekly) and depending on the frequency chosen; the specified amount gets auto-debited from the bank account. An investor gets some units based on the current NAV of the fund instead of the SIP amount.
How to Choose the Best Systematic Investment Plan?
Following are things you require to keep in mind while choosing a Systematic Investment Plan –
- The mutual fund that you are assessing has been in the market for at least five years.
- The mutual fund house or the AMC shortlisted is reputed and accepted.The total assets under management in the fund is essential.
- This prevents from critical volatility of the fund.
Check the instruments held by the fund and evaluate the liquidity of the instruments and the fund. The fund should be liquid so that you can buy and redeem anytime.
Things to Keep in Mind Before Investing In Systematic Investment Plan
Generally, people have remained careful when it comes to the sustainability of equity returns. Market volatility, bad experience, other factors have kept the investors apart from the segment of the market.
But this concern results in investors losing out on the possibility to enter during early phases of the market assemblies. Careful investigation shows that equity investments have the potential to generate substantial returns provided an investor remains invested, in a systematic manner, for a long-term extent. The long-term plan retracts the effect of medium and short-term volatility.
SIP or Systematic Investment Plan: Simple Steps to follow
1. Decide Your Investment Goals:
Before planning any sort of Investments, you require to be clear and specific about your short term as well as long term goals. SIP is considered the immeasurable long-term tool, so you necessitate to focus on your long-term objectives preferably. You can plan to invest money based on various goals like:
- Retirement planning.
- Children education and their wedding.
- Family holiday.
- Purchasing a House etc.
2. Measure your Risk Appetite:
Know your Risk appetite, as to how much risk you are ready to take – Low risk, medium risk or high risk. Before Investing, try to get your needs and risk range. This factor is somehow related to your age i.e. at a young age you can get high risks. But, as you grow up in years, you usually tend to narrow your risk area and start viewing for safer investment options.
3. Plan Your Investment Horizon:
Generally, SIP is considered suitable for Long term Investments, but you require to be more specific as to for how much duration you need to invest your money. Your span based on your financial goals can change anything from a short duration of maybe 3 years to a very long duration of say 20 years. This is a matter of individual choice and depends on individual choices.
4. Invest Online / Offline:
You have two options to Invest Offline or Online. To avoid the troubles of going and submitting the forms and documents manually to Mutual Fund Company/Banks, you should favor the Online method of Investing. There are numerous Online Mutual fund Policies where you can easily fill the application forms, upload your documents and significant proofs and go ahead with the process of investing.
So, having an Online account will have long term advantages wherein you can manage your account and invest your funds with much comfort.
5. Choose Fund Type:
Figure out the various kinds of funds available and choose the one that completely suits you. Do some comprehensive research, based on past performance, the market trends and returns generated over the past years. Although, you cannot rely exclusively on past performance since they are just a significator factor and not any sort of assurance to yield high returns.
You can choose any of the following Mutual Funds based on your financial goals, risk factor, and Investment continuance:
Debt Funds – Invest in Debt Instruments. Debt funds are considered the secured investment options as correlated to equity funds because the underlying asset is Debt.
Equity Funds – Equity funds invest in Equity so are best befitted for the ones who can yield high-risk profile. A SIP in Equity funds is normally regarded as a good option for investors who favour investing their money for a longer duration. These normally perform well if spent for a longer duration.
6.Know Your Customer or KYC Form:
Completing your KYC features is the basic essential while starting a SIP. Being a planned investor, you require to fill a KYC form and submit it to the Fund house along with required proofs. It is a one-time method, so once you fulfil KYC requirements, you can easily carry your investments.
The 3 main proofs that require to be provided are:
- PAN Card Copy as ID Proof
- Address proof like Aadhaar Card, Passport or Voter Card.
- A Cancelled Cheque