Mutual funds are one of the most preferred investing instruments. Many people start their investment journey with mutual funds before directly investing in the stock market. It is easy and convenient for people who have little to no knowledge of investing but want to start anyway.
You may already know how a mutual fund works — a fund house pools your money and invests it in a selection of stocks. The profit made from the investment is then distributed among all investors. You can invest in a mutual fund through a one-time investment or a SIP investment. However, SIP is a more common and preferred way of investing.
What is SIP?
SIP is a Systematic Investment Plan. It allows you to invest a fixed amount on a fixed date in a mutual fund scheme of your choice. It is fully automated, which means you do not have to manually invest every time. Participating in SIP investment helps you build a habit of saving and investing at the same time.
How to start your SIP?
Starting a SIP is very simple and there are a few ways of doing it. You can visit the website of any fund house of your choice and register for a SIP online. If online registration is a hassle for you, you can go to the nearest office of the fund house and register offline. You may also go to a Mutual Fund distributor for the same.
After choosing a medium, you need to complete your KYC, either online, offline, or via an agency. To complete your KYC, you must have identity proof, address proof, a copy of your passport-size photograph, and a cancelled cheque or bank statement. After completing your KYC details, you can pick any mutual fund scheme from the fund house to invest in.
SIP investment is very affordable, flexible, and convenient. You can start your SIP with as low as INR 1000 (some Mutual Fund Schemes also allow you to begin your investment with INR 500). You can fix the date, frequency, and duration of your investment as per your liking. The SIP amount gets deducted directly from your bank account, therefore, freeing you from the burden of investing on time.
Eventually, the size of your mutual fund portfolio will increase with this routine investment habit and result in wealth creation. In case you are unable to continue with your investments or you are not happy with your fund, you can cancel or switch to another fund anytime without any extra charges.
How to choose the best SIP plans?
As a new investor, it is always wise for you to start with a scheme that has a good mix of equity and debt exposure. This type of hybrid fund is great for beginners to understand what to expect in terms of returns and risks. To find the best SIP to invest in, make sure you follow these simple tips:
- Enquire about the fund house of your choice about their plans and compare their performance with similar funds. You can even enquire at your bank as most banks have their mutual fund schemes.
- Choose a mutual fund scheme that is at least 5 years old. You can easily track the overall performance through the ups and downs of the share market with that data.
- Any fund house that has a strong reputable background and is easily recognisable can be trusted with your investments.
- CRISIL-rated funds that hold a good ranking of 1-3 are the ones you should look out for.
- Reach out to certified experts in the field for advice and information. Always remember the wise words of Warren Buffet, “Never invest in a business you don’t understand”. So, learn before you invest. An expert can help you find the best SIP to invest in based on the assessment of your needs and risk appetite.
These tips may help you find the best SIP plans that will suit your requirements, risk appetite, duration, and investment amount.
Things to remember
If you are planning to ride the SIP bus, it is always better to have a destination in mind. It means that you must assign a goal to your investments. It can be as short-term as saving for a trip with your friends or as long-term as planning your retirement. Why? Because it will keep you motivated and on track.
To get the best out of your SIP investment you should keep these three things in mind— Discipline, Patience, and Time. There is no doubt that a SIP investment makes you a disciplined investor. You shouldn’t stop your SIP until your goal is reached. Along with this, you may want to increase your SIP investment amount by a minimum of 10% to ensure you achieve your goals sooner than you expect.
It is all a game of patience. Checking your investment returns too frequently may demotivate you since it all depends on the movement of the share market. As we all know, the share market is unpredictable and volatile. So, you may not see a lot of difference in the short term.
When you sow a seed, you nurture it and wait for it to grow into a plant and then into a tree to bear you fruit. It’s the same with your investments. “Good things take time” and it applies well in the context of your investments too. You cannot expect good returns overnight even if you invest in the best SIP plans available. To benefit from compound interest and generate good returns you must stay invested for a minimum of 5-10 years. So, give your investments time to grow and yield good returns in the long run.
SIP is a way to go for anyone who is starting their investment journey. INR 1000 is ideally a good amount to invest, initially. You can increase or decrease the investment amount according to your comfort.
Investing is all about looking at the bigger picture; therefore, you must stick to your investment game to reap the rewards later. If there’s anything you need to take away from this article, it’s the 3 magical words— discipline, patience, and time. Consider subscribing to Piramal Finance for more such informative blogs.
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