How to Invest in SIP

SIP investment means investing regularly for a better financial future. Through the Systematic Investment Plan, you can invest small sums of money at a pre-determined time, at regular frequencies. See how?
How to Invest In SIP
4 mins
10-May-2024

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.

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 details
  • Copy of passport or driving license (if required)

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

Determine the amount you want to invest regularly (monthly or weekly). This depends on your financial goals and how much you can afford to invest.

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
    • If you are a new investor, create a new account with the mutual fund company or investment platform.
    • If you already have an account, log in with your existing credentials.
    • Complete the Know Your Customer (KYC) details online by providing your personal information and documents.
    • Choose your SIP plan and make the payment online.

Note: After setting up your SIP online, you may need to fill out an Automated Debit Form (ADF) and present it at the nearest bank branch or opt for electronic payment methods like e-mandate, bill pay, or e-NACH.

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Have you ever wondered how much your mutual fund investments could grow over time? Discover potential returns with our SIP return calculator and Lumpsum calculator. Estimate your investment's future value now!

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.

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.

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Disclaimer

Bajaj Finance Limited (“BFL”) is an NBFC offering loans, deposits and third-party wealth management products.

The information contained in this article is for general informational purposes only and does not constitute any financial advice. The content herein has been prepared by BFL on the basis of publicly available information, internal sources and other third-party sources believed to be reliable. However, BFL cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. 

This information should not be relied upon as the sole basis for any investment decisions. Hence, User is advised to independently exercise diligence by verifying complete information, including by consulting independent financial experts, if any, and the investor shall be the sole owner of the decision taken, if any, about suitability of the same.