Why SIP is the simplest way to invest?

There is no dearth of mutual fund investment plans out there. How do you choose the best investment plan for yourself? There are two ways to invest money in mutual funds. Either you can go all in with a large amount of money or you can invest small amounts periodically. The first method is called lump sum investment and the latter is called SIP. Each has its own advantages and risks. How to start a SIP investment?

 

Systematic Investment Plan (SIP) have effortlessly become a trend lately. There are many factors contributing to its popularity. Let us explore a few here.

 

1.               Small investments

For most salaried people trying to make ends meet, savings usually take a backseat. We invest if and when we have money leftover after our expenses. While this is not ideal, if this is your reality, a SIP can be your saviour. SIPs allows you to start investing in rather small amounts. For example, you can become a SIP investor with even just 100 rupees a month. If you have more money, you can also set up multiple SIPs. Especially if you are starting out, it is better to start investing with smaller amounts rather than a large lump sum investment.

 

2.               Easy Exit

As easy it is to set up, a SIP is easy to cancel too. You can opt out of your SIP anytime you wish to. You do not have to pay a fine to stop your SIP payments unlike other regular investment plans like RD. Once you cancel the SIP, you have the choice to pull out your money or stay invested.

 

3.               Timing

A rather attractive feature of SIPs are that there is no need to time your investment. Inadvertently best SIPs manage to catch all the cycles of the market, both the highs and the lows. Eventually the highs and the lows even out and get balanced. This, a concept called Rupee Cost averaging, is a prime reason to subscribe to a SIP.

 

4.               Compounding

Compounding in SIP uses the same principle as compounding interest. The SIP amount you invest regularly generates returns. The new returns is added to the principal amount and re-invested. So in the following rounds, the amount gets bigger and bigger as time goes by. This leads to increased returns.

 

5.               Financial Discipline

Once you set up the SIP, the SIP amount is automatically deducted from your bank account. This ensures that you invest regularly without taking any active efforts. This way, a SIP is like a gift that keeps on giving. You become a disciplined investor by default.

 

6.               Less Risk

It is true that mutual funds are subject to market risks. The market is highly volatile, with a consequent cycle of peaks and troughs. Lump sum investments are riskier. What if you end up investing at a peak? The market will go down and you will suffer loss.

 

How to Start a SIP?

 

There are two ways to start a SIP: offline and online.

 

To start a SIP offline:

1.               Visit the local branch of an Asset Management Company, a bank or a financial agent to initiate the process.

 

2.               Complete KYC.

Know Your Customer is the process that helps the AMC to verify your identity and status. You need the following documents to complete KYC:

1.               An Identity Proof

2.               Permanent Account Number (PAN) card

3.               Proof of address

4.               Photograph

 

3.               Verification

4.               Select a mutual fund of your choice. Select a SIP amount and complete set up.

 

 

Start a SIP online:

 

Setting up SIP online is completely paperless these days. All you need is to have the documents ready, upload copies of the required documents to complete KYC. Go through listing of mutual funds on online platforms and select a mutual fund and SIP amount to start SIP.