HOW TO INVEST IN SIP
If you are looking to save and secure money for your future, a Systematic Investment Plan (SIP) allows you to regularly invest a small, convenient amount in your preferred mutual fund scheme. SIPs are flexible and affordable as you get to decide the frequency of investment, the date of payment, and the amount you wish to invest. Investing in SIP is preferred as it is a low-risk option for better financial planning, regular investing, and definite returns.
If you are new to investing, you may want to understand how to invest in SIP. Here is a conclusive guide to SIP.
How to invest in SIP?
SIP investment starts with choosing a mutual fund scheme based on your financial goals or needs. Once you choose the scheme, you need to periodically invest a fixed amount through SIP.
You can start by investing 10% per month in your SIP mutual fund. Once you start investing, this amount will be invested in the fund each month. Over the years, this amount gets compounded, allowing you to accumulate a substantial corpus as your savings. Assuming returns of 12%, if you continue investing for 10 years, you can grow your investment to twice the original amount.
- Set your financial goals and assess your risk appetite.
- Select a suitable mutual fund depending on your financial goals, risk appetite, and investment time. Consider the past performance of mutual funds before selecting.
- Once you choose the mutual fund company, you will have to create an account if you are a new investor or log in if you have an existing account. Fill out the ‘know your customer’ or KYC details and make an online payment.
- Select the date of your SIP investment as per your preference and convenience.
Determining Financial Goals and Selecting Suitable Mutual Fund Schemes
A SIP investment allows diversification across asset classes and improves the risk of your portfolio. This further allows you to gain the highest returns through your investments. It is important that your investments align with your financial goals, which can be saving for specific occasions or securing your retirement.
While selecting mutual funds, go for the top mutual fund houses. Make sure that you examine:
- The total asset size of the mutual fund
- How long the mutual fund has existed – the longer, the better
- Whether the mutual funds are in conjunction with your bank
Determining the Amount to Invest in SIP
The amount you invest in SIP depends on your financial goals and the corpus you will need to accomplish them. You must consider the amount you can afford, along with your risk tolerance and the duration you wish to invest for.
If your salary is Rs. 50000 and you invest 2% of it or Rs. 1000, per month through SIP, your savings will be very low. However, investing 10% to 20% of your salary through SIP, which is Rs. 5000 for a salary of Rs. 50000, can be an ideal investment amount to gain substantial returns.
Calculating SIP Returns Based on Investment Time
Before you invest through SIP, use a SIP calculator to study the prospective returns through your mutual fund investments. This online tool will help you determine the ideal amount to be invested to meet your financial objectives.
