Systematic Investment Plan or SIP is a popular and useful method of investing in mutual funds. Another option is to invest a lump sum amount if you have spare funds with you and are looking to invest them in stocks. However, if you plan to start with a small amount and invest in a disciplined and structured manner, the SIP route is recommended. This route allows you to take exposure to the equity markets in a staggered manner allowing you to benefit from the rupee cost averaging.
SIP Investment: Points to Remember
The SIP Investment route is an effective way to invest in equity mutual funds and create wealth over a long period of time to fulfil your financial goals. Here are some tips on how to start a SIP investment and use it to create wealth.
- Starting Early is Important – If you are looking to use the SIP route to invest in equity mutual funds, you should start at the earliest possible. Since you can start a SIP with as low as Rs 500, you should start when you begin to earn or can spare a specific amount every month or quarter. This will help you benefit from the compounding effect and build a big corpus over the long run. The later you start, the greater is the pressure to build a kitty of funds to meet specific goals.
- Decide SIP Amount Carefully – Commit only that much that you can easily save and afford to invest every month. Do some calculations and finalize an amount for SIP investment that you can comfortably save and invest.
- Plan SIPs – Don’t start random SIPs. Instead, link them to your goals. Identify your goals and quantify them to know how much you need and after how many years. Plan your SIP investments accordingly. You can use a SIP calculator to find out how much to invest and for how many years to build a specific corpus for achieving a goal.
- Setting the SIP Date – This is important to ensure that you do not have to worry about having adequate funds in your bank account to pay the SIP amount. Always choose a date that is a couple of days after your salary is credited into your account. Also, if you have multiple SIPs ensure that their payment dates differ.
- Type of Funds – Once you have decided to go via the SIP route you need to identify the top performing mutual funds. Go through the list and identify the ones that can help you achieve your financial goals. It is better to go for diversified funds to ensure that the return and risk are balanced. You will also need to check the past performance of the selected fund, the track record of its fund managers, and whether its’ investment goal matches your risk profile.
- Invest Directly or Through Agents – While investing via the SIP option, it is better to choose the direct route to avoid broker commission and fees. However, if you intend to invest in multiple SIPs you may need to register with different asset management companies and may find the process to be quite cumbersome.
The answer to how to start a SIP investment is that you can do it either online as well as offline. Choose your options carefully and go ahead in your aim to build a corpus to meet your future goals.
