SIPs or systematic investment plans is a specialized form of mutual funds investment. In case of SIPs, the investor can invest small amounts of money into selected mutual funds schemes over a period of time, rather than investing the whole amount at once. The investments can be made quarterly, monthly or weekly, as per the convenience of the investor.
Why should you consider SIPs?
In standard investments schemes, you invest the lump sum amount at once. If the investment is in equity mutual funds, the risk is quite high and with a lump sum investment, you may end up losing money if the fund underperforms. However, with SIPs, you get the chance to monitor the markets periodically and adjust your investment schemes accordingly.
A fund manager will manage the fund so that you end up with a sizable return, instead of incurring losses. With SIP, you need to establish a diverse investment profile, so that you can minimize the risk of losses.
How to invest in SIP
- Evaluate your risk appetite and investment goal
Risk appetite, usually, go down with age, due to increased financial responsibilities. However, if you want to increase your earnings through SIP investment, you would have to take greater risks. Furthermore, you need to assess the goal of your investment. For instance, you may be investing in order to finance a foreign trip or a new car, in which case you need to adjust your risk appetite accordingly.
- Choose the best mutual fund for you
Once you determine the risk appetite and goal, choosing the correct mutual fund scheme will become easier. However, make sure you compare the return rate for the past few years before investing in a particular scheme. If you have chosen the mutual funds of your choice, follow the procedure listed below to invest-
- Fill up the application form for the scheme.
- Submit the SIP amount through a cheque or an ECS mandate.
- Submit a cancelled cheque.
- Provide proof of residence
- KYC form
- Pick the SIP date
Once you have submitted all the necessary documents, you need to pick a convenient date when the SIP sum would be paid every month. This will cause an auto debit of the said sum. However, you are free to choose multiple dates for the payment if required.
- Decide the SIP tenure
Since SIPs are an effective way of accomplishing your financial goals, you can use an MF calculator to figure out just how long it would take the investment to reach your pre-determined goal. This will help you determine the tenure for a SIP investment.
Now that you know how to invest in SIPs, simply follow these steps to ensure the best possible returns from the investment. Since SIPs do not require you to time the market, you can invest and sit back and watch your wealth grow over time.
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