Saturday, 12 January 2019

How to start a SIP in Mutual Funds?

How to start a SIP in Mutual Funds?

How to start a SIP in Mutual Funds?

Many people want to start investing in mutual funds through SIP (Systematic Investment Plan). That is a wonderful idea. SIPs are the best way to accumulate wealth for fulfilling financial goals. SIP allows you to invest a small amount of money periodically into a mutual fund scheme. Are you also planning to start a SIP in equity mutual fund schemes? Then, let's understand what a SIP is, how a SIP works and how to start a SIP in mutual funds. The procedure to start a SIP is very easy once you decide how much you want to invest and how often.

What is SIP (Systematic Investment Plan)?

SIP or Systematic Investment Plan is nothing but a method of investing in a mutual fund. It is a smart and hassle-free financial tool, offered by mutual funds to help investors invest regularly in a disciplined manner. SIP allows you to invest a pre-determined amount of money at a regular interval, over a period of time. The frequency of investment is usually weekly, monthly or quarterly. The concept of SIP is similar to a recurring deposit where the investment of a fixed amount is made on a regular basis. SIP is a disciplined approach towards investment and helps you to create wealth for the future by investing a small amount of money periodically instead of lump sums.

How does SIP work?

A SIP works on the principle of regular investment. In a SIP, your pre-determined amount of money is auto-debited from your bank account and automatically invested into a particular mutual fund scheme chosen by you. A certain number of units based on the ongoing market rate (called NAV or net asset value) for the day are allocated to you. Every time you invest money, additional units of the mutual fund scheme are allocated to you on the basis of the market rate. In this way, SIP provides with the flexibility to buy more units when the price declines and lesser units when the price surges. Hence, units are bought at different market rates and investors avail from Rupee Cost Averaging and the Power of Compounding.

How to start SIP in Mutual Funds?

Procedure to start a SIP in mutual funds is very easy once you decide how much you want to invest and how often. The steps to start a SIP account for investing in a mutual fund are:

1. KYC Compliance

Before you start investing in mutual funds, you need to complete your KYC formalities. KYC (Know Your Customer) compliance is compulsory for investing in mutual funds in India. It requires you to submit a KYC form to any of the AMC (Asset Management Company), any licensed intermediary or CAMS office. Documents required would be KYC application form along with PAN card, an address proof (Copy of Aadhaar card, Passport, Voter Id Card, Driving License, Ration Card Bank Passbook, Latest Telephone Bill (landline only), Latest Electricity Bill etc.), a Photograph and a canceled cheque. You need to submit copies of all the above-mentioned documents by self-attesting them along with originals for verification. KYC verification is one-time exercise post which you can invest in any mutual fund in India.
There two ways to become a KYC compliant
a) Offline KYC process
b) eKYC process (Online)
You can check your KYC status with your PAN number with any of the KYC Registration agency

2. Choose Mutual Fund

This is an important step to choose the right mutual fund to SIP. When your application is submitted, you need to identify which mutual fund is best suitable for you. There are various types of mutual fund schemes are available in the market. Therefore you should choose the funds based on your risk profile and also personal goals. It is very important to know which scheme is best to fulfill your future requirements. You also need to decide the medium of your investment: Direct or through an advisor or a distribution house.

3. Decide the date and duration of the SIP

Once you are KYC verified and have decided the mutual fund scheme you want to start SIP in, you need to decide the date and duration of the SIP. You can select your SIP frequency, date and amount depending on your personal needs. Different SIP frequencies are weekly, monthly and quarterly. You can invest online or offline in SIP. You have to give a standing instruction to intermediary/Mutual Fund Company and the money gets debited automatically from your bank account on investment date and gets invested into SIP. This can be done by submitting a mandate to the mutual fund company/intermediary or by adding the mutual fund company/intermediary as a biller in your internet banking.

You can apply all the three steps mentioned above together at the time of making the investment.

SIPs (Systematic Investment Plans) are the best way to accumulate wealth for fulfilling financial goals. The best way to get the benefit of SIP is to just get started. After starting a SIP, all you have to do that is sit back and watch your investments grow. You should not check daily prices of mutual funds and should not try to time the market with SIPs.

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How to start a SIP in Mutual Funds?