Are you keen to be a Mutual Fund investor? It’s a great idea. One of the best ways to invest in Mutual Funds is through a SIP. Read on to know more.
The stock markets are booming, and there’s great interest in investing in financial assets such as mutual funds. Are you keen to be a Mutual Fund investor, too? It’s a great idea. One of the best ways to invest in mutual funds is through a Systematic Investment Plan – or SIP.
Think of an SIP like a recurring deposit but for mutual funds. Every month on a fixed day, your SIP automatically invests a fixed amount into a mutual fund of your choosing. The amount is auto-debited from your bank account on the set date. This helps you invest as per your requirement in a disciplined, consistent manner.
With an SIP, you don’t have to worry about which securities to buy, hold, or sell, and when. These tasks are managed by your mutual fund manager. All you need to do is keep investing in a disciplined manner as per your goal. In a falling market, you’re buying your fund at lower costs, and in a rising market, you’re making profits.
For first-time SIP enthusiasts, here’s a five-step guide.
Step 1: Set A Goal
This is key to any investment goal. There are three questions you must answer. One – what do you want to achieve? The answer could be many: you want to save money to buy a car or make a house down payment. Two – how much money would you need? With this, you can divide the goal into monthly amounts you need to invest. For example, you need Rs. 200,000 in two years. Therefore, you need to invest Rs. 7500 in a mutual fund that can provide you a CAGR of 12%. Three – when would you need this money? These three questions would help you shortlist the ideal investment opportunities.
Step 2: Complete Your KYC
Completing KYC (Know Your Customer) process is the first step to starting an SIP. KYC is compulsory when investing in mutual funds to prevent money laundering. You need to submit the following as identity and address proof.
- PAN card copy
- Address proof like Aadhaar or passport.
- Cancelled cheque and passport size photograph.
You can also complete KYC through Central KYC (c-KYC). KYC used to involve a lot of documentation and was difficult. To simplify the process, the Government introduced c-KYC, which is a single KYC for an investment in different financial products across financial regulators.
Step 3: Choose The Right Fund
There are different kinds of mutual funds and you choose the one which best suits your needs. You then invest in the mutual fund through SIP, either directly with an AMC or through online mutual fund aggregators such as BankBazaar.
Select mutual funds depending on risk capacity, financial goals and time of investment.
If you are risk-averse, invest in a liquid mutual fund which is regarded as safe. Your money will go to fixed income instruments. If you are a risk taker, start an SIP in equity funds where you get higher returns for higher risk. The investment is in stocks. Stay invested for the long term to get profits. You could also consider an SIP in balanced funds, also called hybrid funds, which invest in a mix of stocks and fixed income securities.
If you find this too confusing, take the help of an investment services company, which does research, (studies market conditions and funds past performance) and helps you choose the fund which best suits your needs.
Step 4: Decide on SIP amount and Date
Decide on an SIP amount you are comfortable investing each month/quarter based on your savings, investments and financial goals. You need to make a minimum investment through SIP of at least Rs. 500 per month. Are you investing in mutual funds via SIPs to meet financial goals? An online SIP calculator gives you an idea on how much to invest each month/quarter in SIPs.
Next, decide your SIP date. This is the date on which you need to have a balance in your account which would be automatically deducted towards your investment. Choose it carefully. Best to pick a date around when you receive your salary.
Step 5: Complete Your Sign-up
Make sure you’ve enabled the ECS mandate to auto-debit your account. This way, the SIP amount would be automatically transferred, keeping you from hassles of remembering your SIP date and amount. You can also create instructions on your netbanking bill payments platform to make sure the payments are on time.
SIP investing is extremely easy and only takes a few minutes when you choose to do it online. Start investing today to reap your rewards from the stock markets.