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Systematic Investment Plan or SIPs are mutual fund investment plans whereby you can invest fixed amounts in mutual fund schemes at regular intervals (e.g. weekly, fortnightly, monthly etc). SIP has become very popular as an investment option, especially among retail investors, since its launch in India about 20 years back.
Why invest in mutual fund SIPs?
- You do not need a large sum of money to invest in SIPs. You can start investing in SIPs with small amounts, just Rs 500 per month or any other interval.
- You can start SIPs in mutual funds from your regular monthly savings. Since you can start with a small amount, you can start investing early in your career and have long investment tenures.
- Over long investment tenures, mutual fund investment through SIP can create wealth for you through the power of compounding.
- SIPs keep your investments disciplined. You do not have to worry about markets going up or down, since you keep buying at different price levels through SIP.
- SIPs can help you take advantage of market volatility through rupee cost averaging of purchase price (NAV) of units of mutual fund schemes.
How to invest in SIP?
- If you are an existing mutual fund India investor, you can check your KYC status online by entering your Permanent Account Number (PAN) on the depositary portals or the portals of the Registrar and Transfer Agents (RTAs). If you are a new mutual fund investor, you need to submit your KYC documents i.e. photograph, identity proof and address proof to the AMC or RTA for making a new KYC.
- To invest in SIP, you first need to select a mutual fund scheme where you want to invest through systematic investment plan. You can invest in any open ended mutual fund scheme e.g. equity funds, hybrid funds, debt funds etc, through systematic investment plans.
- However, after selecting the scheme, you need to figure out what would be your return in mutual funds. To know this, you can use a SIP calculator. You can input the monthly SIP amount, the investment tenure and the assumed rate of return, in the SIP calculator. It will instantly calculate the return and show the future value of your SIP.
- The final step in starting your mutual fund SIP is submitting a bank Electronic Clearing Services (ECS) or National Automated Clearing House (NACH) mandate where you have to specify the SIP amount, the interval and the SIP date. Through the ECS or NACH mandate, you instruct the bank to debit a certain amount at the specified date(s) of a month and credit to the mutual fund. On every SIP date, the SIP amount gets automatically debited from your bank account and units of the mutual fund scheme allotted to you based on applicable Net Asset Values (NAVs).
Mutual fund SIP is the easiest way of creating long term wealth. Using a SIP calculator, you can plan your future goals and achieve them through systematic investment plan.