How to Invest in SIP

Investing in a SIP is simple and convenient if your documents are in order. Begin by defining your investment goals and selecting a suitable scheme based on your risk profile and time horizon. Ensure you are KYC compliant before proceeding. Next, choose the SIP date, duration, and investment amount, along with the frequency based on your cash flow. Finally, start your SIP by submitting the form either online or offline through your preferred channel.
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How to Invest in SIP for Beginners?
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4 mins
21-February-2025

Systematic Investment Plans (SIPs) are often a preferred method for individuals to invest regularly and build wealth over time. With an SIP, you invest a small amount of money at regular intervals, usually monthly, into a mutual fund of your choice. This consistent investment approach helps you develop a habit of saving and takes advantage of the power of compounding, which means your money grows faster over time.

In this article, we will walk you through everything you need to know to start investing in SIPs. We will cover important points to consider before you begin, helping you make smart decisions and get the most out of your investments. Whether you are an experienced investor or new to the world of finance, this guide will provide you with the knowledge you need to succeed with SIPs.

What is Systematic Investment Plan (SIP)?

A Systematic Investment Plan (SIP) is a popular investment strategy in mutual funds, involving regular, systematic investments of predetermined amounts. This approach offers several advantages:

  • Risk mitigation: SIPs help minimize the impact of market volatility by averaging out the purchase price of mutual fund units over time.
  • Cost-efficiency: Regular investments can often lead to lower average costs per unit, especially during market downturns.
  • Discipline and consistency: SIPs encourage disciplined investing habits, ensuring consistent contributions to financial goals.
  • Accessibility: SIPs are typically available with small, affordable investment amounts, making them accessible to a wide range of investors.

By investing a fixed sum at regular intervals, SIPs allow investors to benefit from market fluctuations without the need for constant market timing. This strategy provides a convenient and effective way to build wealth over the long term.

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How to invest in SIPs in India?

Starting a SIP investment inculcates the habit of savings and creates wealth over time. In India, you can start your SIP journey through some easy steps. Let’s check them out:

Step 1: Gather the necessary documents

Before you start, make sure you have the following documents ready:

  • ID Proof (e.g., Aadhaar card, Passport)
  • PAN card
  • Address proof (e.g., electricity bill, rent agreement)
  • Bank account detail
  • Copy of passport or driving license (if required)

Please confirm the accuracy of your account number and bank account details. Additionally, a copy of your passport or driving license will be necessary. For non-cash investments, please ensure compliance with current government KYC regulations.

Step 2: Complete your KYC (Know Your Customer)

You need to comply with the KYC norms set by the government. This involves filling out a form with your personal details at an authorised bank or post office, where pre-paid cards are issued. You can also do this online. Mostly, the form will ask for information like your name, address, photo ID proof, and a declaration about your investment.

Step 3: Register for a SIP

To start making your SIP, you must choose a broker or financial advisor in India and register with them. Upon successful registration, they will provide you with various investment plans. Select the one that suits your needs and risk profile.

Step 4: Choose the right plan

It is important to note that there are various SIP plans available, each offering different returns and benefits. Hence, selecting the right plan is the most crucial step. Before making a selection, you must ask yourself the following questions:

  • How much risk you are willing to take?
  • How many units (same as shares) do you want to buy?
  • What type of investor you are (conservative, moderate, aggressive)?

Step 5: Decide how much to invest

Please specify the desired investment amount for this scheme. Consider your financial goals and time horizon when determining the optimal monthly or weekly contribution.

Step 6: Select the date for your SIP

You can invest through SIPs by picking a convenient date. You can even choose multiple dates for different SIPs within a month.

Step 7: Submit Your SIP application

After choosing a mutual fund company, start the SIP by submitting the application form. You can do this either online or offline (depending on your fund house) in the following manner:

Online process

  • Account creation or login: Establish a new investor account or access an existing one using your login credentials.
  • KYC completion: Provide the necessary Know Your Customer (KYC) information.
  • Online payment: Complete the payment transaction digitally.

Offline process

  • Application and KYC forms: Submit the required application and KYC forms (currently paused).
  • Payment authorisation: Provide a canceled cheque and Auto Debit Form for payment authorisation.
  • Identity verification: Furnish supporting documents such as utility bills, address proof, and other identification.

Benefits of investing in mutual funds via SIP

Here are some benefits on investing in mutual funds via SIP

  • Rupee Cost Averaging: SIP allows you to buy more units when prices are low and fewer when they're high, reducing the risk of making poor investment decisions based on market fluctuations.
  • Disciplined Saving: SIP instills financial discipline by ensuring you invest regularly, regardless of market conditions.
  • Compounding Benefits: Over time, SIP investments benefit from the power of compounding as returns on your investments generate additional returns.
  • Accessibility: SIP is accessible to both new and experienced investors and accommodates a wide range of budgets.
  • Professional Management: Mutual funds are managed by professional fund managers who make investment decisions on your behalf, based on their expertise and research.
  • Diversification: Investing in mutual funds through SIP provides diversification as your money is spread across a portfolio of assets, reducing the risk associated with individual stocks or bonds.
  • Convenience: The automatic deduction of SIP amounts from your bank account makes it a hassle-free investment option.

How much you should invest in SIP

Here are a few details about how much should you invest in SIP:

  • There is no limit to the amount you can invest in a SIP. The minimum amount that you can invest can be as low as Rs. 100 per month.
  • The ideal amount to invest in an SIP will differ from investor to investor, depending upon a number of factors such as their financial goals, investment horizon, and risk appetite.
  • You can use an SIP calculator to estimate the potential future value of your monthly investments. To use this functionality, you need to provide 3 key inputs: the amount you want to invest, the number of years for which you want to stay invested, and the expected rate of return.

Tips to invest in SIP

Tips for Investing in Systematic Investment Plan (SIP)

  • Start early: Begin investing as soon as possible to benefit from the power of compounding.
  • Set clear goals: Define your financial objectives to determine the appropriate investment horizon and risk tolerance.
  • Choose the right funds: Select mutual funds based on your goals, risk appetite, and investment horizon. Consider factors like fund manager's performance, expense ratio, and asset allocation.
  • Diversify your portfolio: Spread your investments across different asset classes (e.g., equity, debt, gold) and funds within each class to mitigate risk.
  • Review and rebalance: Regularly assess your portfolio's performance and make adjustments as needed to align with your goals and changing market conditions.
  • Stay patient: Avoid making impulsive decisions based on short-term market fluctuations. Stick to your investment plan and remain patient, especially during market downturns.
  • Consider tax implications: Understand the tax implications of investing in mutual funds, including short-term and long-term capital gains taxes.
  • Seek professional advice: If you're unsure about investing or need guidance, consult with a financial advisor who can provide personalised recommendations.

High-return mutual funds to consider for SIP in 2025

Quant Small Cap Fund

ICICI Prudential Commodities Fund

Nippon India Small Cap Fund

Quant Infrastructure Fund

ICICI Prudential Infrastructure Fund

Bandhan Infrastructure Fund

HDFC Infrastructure Fund

Bandhan Small Cap Fund

Motilal Oswal Midcap Fund

DSP India T.I.G.E.R. Fund

SBI Contra Fund

Bank Of India Small Cap Fund


Start investing early in SIP to get more returns in the long term

A seasoned professional, Seema, is preparing for a well-deserved retirement in three years. As a single mother, she has diligently managed her finances independently. Her financial acumen has inspired her peers, who are curious about her retirement planning strategy.

Seema has strategically saved and invested throughout her career to ensure a comfortable retirement. Her plan involves withdrawing funds from her investments to generate a steady income stream. Recognizing her limited expertise in active investment management, Seema has wisely chosen mutual funds as her primary investment vehicle.

She has leveraged systematic investment plans (SIPs) and top-up SIPs to maximize her returns. SIPs have been instrumental in building a substantial retirement corpus. By investing a fixed amount periodically in equity mutual funds, Seema has benefited from rupee cost averaging. This strategy helps mitigate the impact of market volatility, ensuring consistent growth over the long term.

When to start SIP: Top or bottom of the market cycle

Many investors wonder if it's better to start a Systematic Investment Plan (SIP) when the market is low or high. The truth is, timing the market perfectly is extremely difficult—even for experts. SIPs work on the principle of rupee cost averaging, meaning you invest a fixed amount at regular intervals regardless of the market level. When markets are down, you buy more units; when markets are up, you buy fewer. Over time, this helps average out the cost of investment and reduces the impact of volatility.

Rather than waiting for the “perfect time,” it’s more important to start early and stay consistent. Long-term SIPs have the potential to create significant wealth through compounding. So, whether you begin at the top or bottom of a market cycle, consistent investments are key to achieving your financial goals without the stress of market timing.

How to easily calculate returns on your SIP investments

Calculating returns on your SIP (Systematic Investment Plan) investments is crucial for tracking progress toward your financial goals. One of the simplest and most effective ways to do this is by using a SIP return calculator—a free online tool that gives you an instant estimate of your potential returns.

To use a SIP calculator, all you need to do is enter a few basic details:

  • Monthly investment amount (how much you plan to invest every month),
  • Investment tenure (how long you’ll stay invested),
  • Expected annual rate of return.

Once you enter these inputs, the calculator shows the total invested amount, the estimated maturity amount, and the wealth gained from your SIP over the selected period. It uses the compound interest formula, which accounts for periodic investments and expected growth over time.

For those who prefer manual calculations, the future value (FV) of SIP can be calculated using: 

FV = P × [{(1 + r)^n – 1} / r] × (1 + r)

Where:
P = SIP amount,
r = expected rate of return per month,
n = total number of instalments.

Using calculators or formulas helps SIP investors make more informed decisions and adjust contributions based on financial goals and market performance.

Things to consider before investing in SIP

  1. Financial Goals: Clearly define your financial objectives, whether it's wealth creation, education, retirement planning, or buying a home. Align your SIP investments with these goals.
  2. Risk Tolerance: Assess your risk tolerance and choose SIPs that match your comfort level with market fluctuations. Conservative investors may opt for debt funds, while those comfortable with risk may choose equity funds.
  3. Investment Horizon: Determine your investment horizon, considering the time you can commit to staying invested. Longer investment periods often align well with equity funds, while shorter periods may suit debt funds.
  4. Expense Ratio: Evaluate the expense ratio of the SIP, which includes management fees and operational costs. Lower expense ratios contribute to more efficient returns.
  5. Fund Performance: Analyse the historical performance of the mutual fund, comparing it with benchmark indices and peers. Consistent and robust performance over time is indicative of a well-managed fund.
  6. Fund Manager Expertise: Consider the expertise and track record of the fund manager. A skilled manager can significantly impact the fund's performance.
  7. Exit Load: Be aware of the exit load, a fee charged for premature withdrawals. Understanding the exit load structure is crucial for managing liquidity needs.
  8. Diversification: Diversify your SIP portfolio across different asset classes and fund categories to spread risk and enhance potential returns.
  9. Market Conditions: Stay informed about prevailing market conditions. Periodically review and adjust your SIP strategy based on economic trends and financial goals.
  10. Systematic Investment Amount: Determine an affordable and consistent SIP amount based on your financial capacity. Regular contributions, even if modest, can accumulate to significant wealth over time.

Conclusion

In short, SIPs offer many benefits to investors worldwide, including consistent returns based on the power of compounding. However, it is important to properly understand how to invest in SIPs, as they are not a guaranteed way to make money. Your profits depend on the performance of the assets that the SIP invests in. Therefore, it is essential to carefully research the different mutual fund schemes and choose the fund which satisfies your risk appetite and return expectations.

Essential tools for mutual fund investors

Mutual Fund Calculator

Lumpsum Calculator

Mutual Funds SIP Calculator

Step Up SIP Calculator

SBI SIP Calculator

HDFC SIP Calculator

Nippon India SIP Calculator

ABSL SIP Calculator

Tata SIP Calculator

BOI SIP Calculator

Motilal Oswal Mutual Fund SIP Calculator

Kotak Bank SIP Calculator

Frequently asked questions

Which is the best SIP for beginners?

The best SIP (Systematic Investment Plan) for beginners depends on individual financial goals and risk tolerance. Generally, starting with a well-diversified equity mutual fund with a good track record can be a prudent choice for long-term wealth creation.

For beginners looking to invest in SIPs, there are several good options to consider. The Quant Active Fund, a multi-cap fund with 40% growth and 60% value stocks, manages assets worth Rs. 3,480 crore and primarily invests in pharmaceuticals, consumer staples, and materials. Since its launch on January 1, 2013, it has delivered average annual returns of 21.17% with an expense ratio of 0.58%. Another option is the PGIM India Flexi Cap Fund, which has been around since 2015 and invests in equity and debt markets. With an AUM of Rs. 5,291 crore, it focuses on sectors like financial services, automobiles, and technology, yielding an annualised return of 14.91% with an expense ratio of 0.31%.

Additionally, the Parag Parikh Flexi Cap Fund is a balanced fund investing in equity and debt, with Rs. 28,546 crores in AUM and preferred sectors like financial services, technology, consumer staples, and energy. Since its inception on May 13, 2013, it has delivered average annual returns of 18.88%, although it has a higher expense ratio of 0.76%.

For a more diversified approach, the Kotak Equity Opportunities Fund invests across equity and debt markets with an AUM of Rs. 11,662 crore and focuses on energy, capital goods, and chemical sectors. It has provided consistent annualised returns of 16.68% since 2013 and has an expense ratio of 0.59%. These funds are suitable for new investors as they offer growth potential and stability besides charging manageable costs.

Can I invest Rs. 100 daily in SIP?

Yes, you can start investing with as little as Rs. 100. In mutual funds, you can begin with a small amount and still build wealth over time. However, properly research the funds you want to invest in. Also, be consistent and diversify your investments to spread out the risk. By being patient and focusing on long-term growth, you can create a sizeable corpus despite starting with only Rs. 100 per month.

Is SIP a good investment?

SIP is considered a good investment strategy for long-term financial goals. It offers benefits like rupee cost averaging and the power of compounding, making it a disciplined and effective way to accumulate wealth. However, the choice of the specific SIP and its performance can impact the overall results, so research and diversification are key.

Can I withdraw SIP anytime?

Yes, you can withdraw from your SIP investments at any time. However, the ease of withdrawal and any associated charges may vary depending on the mutual fund scheme and its terms. It's advisable to check the fund's exit load, if any, and consider your investment horizon before making withdrawals to optimise returns and meet your financial goals effectively.

How can I start investing in SIP?

Investing in a SIP (Systematic Investment Plan) is simple. Choose a mutual fund, set your investment amount, and select the frequency (monthly, quarterly, etc). Here’s how to go about it.

Step 1: Set a target
The first step that you ought to take is deciding how much you want to earn via SIPs. Once you know the desired amount, move on to step two.

Step 2: Decide the amount
This step involves judging your current income and expenditure and deciding how much you will contribute to SIPs monthly. The best part is that you can increase the amount later on if you wish to. To start with, you can invest as little as Rs. 100 too.

Step 3: Decide the tenure
Based on the amount that you can invest, select an appropriate tenure. Remember that the benefits of rupee cost averaging and compounding interest are highest when you stay invested for a long duration. You can use a SIP calculator to decide this parameter accurately.

Step 4: Select an SIP
This is the most critical consideration. Research your options thoroughly and discuss them with a financial advisor. This way, you will be able to select the best SIP that caters to your financial goals.

What is SIP interest rate?

SIP doesn't offer a fixed interest rate because it involves investing in mutual funds, which are market-linked. Your returns depend on the performance of the underlying assets in your chosen mutual fund.

Can I start SIP at any time or when the market is high?

You can start a SIP at any time, and it's generally a good practice to invest consistently regardless of market conditions. SIP's rupee cost averaging feature helps you benefit from market volatility.

Are there any upper limits in SIP investments?

There is typically no upper limit on SIP investments. However, the maximum amount you can invest may depend on your chosen mutual fund and your financial capacity.

Is investing in SIP safe?

A. SIP (Systematic Investment Plan) investing is generally considered safer than lumpsum as it spreads investments over time, reducing the impact of market volatility. However, like any investment, it carries inherent market risk.

How much SIP should I start?

To determine how much you should invest in a SIP, aim to save at least 30% of your gross income. For example, if your gross income is Rs. 2,00,000 per month, try to save and invest Rs. 60,000 each month.

A useful rule of thumb for deciding how much to invest in equity (through mutual funds) is to subtract your age from 100. The result is the percentage of your savings that you should invest in equity. For example, if you are 30 years old, you should consider investing 70% (100 - 30) of your savings in equity mutual funds. This approach helps balance your investments according to your age and risk tolerance.

What happens if you miss an SIP payment?

Investors typically miss their SIP instalments due to insufficient balance in their bank account for the automatic debit. Usually, the mutual fund company or broker won't penalise you for such a default, and there are no severe consequences. However, your bank might charge you a fee for not maintaining sufficient funds and for missing the ECS (Electronic Clearing Service) auto-debit payment.

Are SIPs risk-free?

SIPs are not completely risk-free because they invest in a variety of securities, including stocks, which are known for their volatility. This means that stock prices can fluctuate significantly, thereby making SIP investments risky. However, SIPs mitigate some of this risk by spreading investments over time. Also, this approach of regular investing reduces the risk of investing a large sum at once during market highs.

What is the significance of SIPs in the mutual fund industry?

SIPs play a pivotal role in the mutual fund industry, contributing significantly to overall assets under management (AUM) and driving equity market participation. Their popularity is evident in their substantial share of total AUM and open-ended equity-oriented AUM.

How do SIPs differ from lump-sum investments?

SIPs employ a systematic investment approach, involving regular, periodic contributions, whereas lump-sum investments entail a one-time, substantial allocation of funds.

How does rupee cost averaging work in SIPs?

Rupee cost averaging is a strategy that leverages market fluctuations to optimise investment efficiency. By investing a fixed amount consistently, investors acquire more units when prices are lower and fewer units when prices are higher, effectively reducing the average cost of ownership over time.

What factors should I consider when choosing a SIP?

Selecting the right SIP involves careful consideration of several factors, including:

  • Financial goals: Aligning the investment strategy with specific objectives.
  • Fund performance: Evaluating historical returns and consistency.
  • Expense ratio: Assessing the fees charged by the fund manager.
  • Fund manager's track record: Considering the manager's experience and investment acumen.
  • Diversification: Ensuring a balanced portfolio across different sectors and asset classes.
How important is setting clear financial goals for SIP investing?

Establishing well-defined financial goals is paramount for successful SIP investing. These goals provide a roadmap, guiding investment decisions and fostering commitment to achieving desired outcomes.

Why should I opt for the auto-debit facility for my SIP?

The auto-debit facility offers several advantages, including:

  • Discipline: Ensures consistent and timely investments.
  • Convenience: Eliminates the need for manual transactions.
  • Efficiency: Reduces the risk of missed payments.
How often should I review and rebalance my SIP portfolio?

Regular portfolio reviews and rebalancing are essential to maintain alignment with evolving financial goals and risk tolerance. A periodic assessment helps identify potential adjustments to ensure optimal performance.

Should I increase my SIP amount with income growth?

Increasing your SIP contributions in line with income growth is a prudent strategy. This approach can accelerate wealth accumulation and enhance the potential for achieving long-term financial objectives.

Why is diversification important in SIP investments?

Diversification is a cornerstone of effective SIP investing. By spreading investments across various sectors and asset classes, investors can mitigate risk and enhance the stability and potential returns of their portfolio.

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