A Detailed Guide To Investing In SIPs

Wealth creation requires discipline – it’s created over a period of time through systematic and meticulous investments. You need to start saving from the time you start earning and put away money in a diverse range of financial instruments so that you can accumulate a huge corpus and fulfil your financial goals.

Some of the best investment instruments for long-term wealth creation include Public Provident Fund (PPF), recurring deposits and mutual funds. So what’s the best option for disciplined investing? It’s a mutual fund SIP which, just like your recurring deposits, instil in you the discipline of keeping aside a fixed sum every month. Before we get into the nitty-gritty of how you can invest in it, let’s understand what is SIP.

What is SIP investment?

SIP (Systematic Investment Plan) is an option given to you by fund houses that allows you to invest in mutual funds by paying a certain, fixed amount over a certain time period. You need not invest in mutual funds by paying a lump sum. The SIP option makes it possible for you to choose a mutual fund or funds and invest the amount in instalments, based on the duration you are comfortable with, whether it is weekly, monthly, quarterly or semi-annually.

The number of units allotted over the tenure depends upon the unit price of the fund. So, if you decide to invest ₹2,500 in a particular fund each month, you could receive 125 units in a fund if the price per unit is ₹20. If the unit price increases to ₹25 next month, you would be allotted only 100 units that month.

Detailed guide to investing in SIPs

Now that we know what is SIP in mutual fund, let’s understand the procedure for SIP investments.

Step 1 – Define your investment objectives: Your investment strategy will depend on your financial goals. Your fund manager can help you build your investment portfolio based on your short- and long-term goals.

Step 2 – Determine your risk appetite: You need to assess your risk appetite. If you are a conservative investor, you may invest in low-risk securities. If you have an appetite for high-risk investments, you may even be able to reap higher returns.

Step 3 – Choose funds to invest in: You can choose from a wide range of mutual fund schemes to invest in. A good rule of thumb for fund selection is taking into account the fund’s past performance. Note that before you purchase the fund of your choice, you must fulfil the one-time KYC (know your customer) compliance with the help of your investment advisor.

Step 4 – Choose the SIP date and tenure: You must choose the date for the SIP amount to be deducted from your savings account. The amount is auto-debited, so you must ensure that you have sufficient funds in your account for the money to be debited on the chosen date. You must also select the tenure of investment depending on when you need the sum you have invested. Some funds like ELSS (equity linked savings schemes), through which you can save tax, have a fixed tenure of three years.

SIP investments are ideal for both, new and seasoned investors. New investors can especially benefit from SIP because it inculcates a sense of disciplined savings from the beginning, while they don’t need to worry about lump sum investments. Also, it if you are a new investor, it is better to opt for the services of a financial advisor and acquaint yourself with how the investment market works.