If you are a beginner and want to start your investing journey, then the first thing you should keep in mind is discipline. If you are disciplined enough to invest regularly in the stock market, only then you’ll be able to compound your money over time for wealth generation.
And SIP plays a crucial role in making you a disciplined investor. Let’s discuss everything about SIP including how to invest in SIP in a step-by-step manner.
What is Systematic Investment Plan and How It Works
Systematic Investment Plan or SIP is a plan where you invest a fixed amount of money at regular intervals. The intervals can be weekly, monthly, or quarterly.
Your money is invested in mutual funds, which are managed by professional fund managers. The mutual funds, in turn, invest the money in a mix of stocks, bonds, and other assets.
One of the primary benefits of investing in SIPs is that it allows you to invest a small amount of money regularly and enables you to take advantage of the power of compounding. Let’s discuss the benefits of investing in SIP in detail.
Benefits of Investing in SIPs
#1. Regular Investment
SIPs help you make regular investments in mutual funds. You can invest a small amount of money every month, which can add up over time.
This way, you can invest without worrying about market timing or market fluctuations. SIPs help you achieve your financial goals by investing a small amount of money every month, which can add up over time.
You may like to read how to earn Rs. 1000 daily without investment online in India.
#2. Rupee-Cost Averaging
SIPs follow a concept called rupee-cost averaging. This means that you buy more units when the market is low and fewer units when the market is high. Over time, this helps you get better returns on your investments.
#3. Disciplined Investing
SIPs help you develop a disciplined investment habit. Since you invest regularly, you are less likely to be affected by market volatility or emotional biases. This discipline helps you stay on track with your financial goals.
SIPs offer flexibility in terms of investment amount and frequency. You can invest as little as Rs. 500 per month in SIPs. You can also choose the frequency of investment, such as monthly, quarterly, or bi-annually, based on your convenience.
You can invest in multiple mutual funds through SIPs, which helps you diversify your portfolio. Diversification reduces the risk of your investments and helps you get better returns.
You can also diversify your portfolio to start SIP in a smallcase. Smallcase is a platform that allows you to buy and sell a basket of stocks or ETFs in a single transaction. You can also find the smallcase promocode to save some money while starting a SIP in your favorite smallcases.
How to Start Investing in SIP
Step 1: Open a demat account
You have to open a demat account with any broker like Zerodha, Upstox, or Groww. If you already have a demat account then you can skip to the next step. I am taking the example of Zerodha here and you can check the complete process to open a Zerodha account.
Step 2: Log in to your broker’s platform.
For example, log in to Coin.zerodha.com using your Zerodha account credentials. The coin platform is specifically designed to invest in mutual funds. You can also read our dedicated article on how to invest in mutual funds using Zerodha coin.
Step 3: Search the mutual funds
You can directly search for the mutual fund that you want to invest in or go to the mutual fund section to explore the available options.
Or you can choose based on asset class like tax savers, low-cost index funds, or hybrid funds. Zerodha will list down all the mutual funds based on your selection under the Mutual funds’ menu. You can read our list of best index funds in India to compare the best options available.
Step 4: Select the mutual fund
Click on the mutual fund. You will get all the information about the mutual fund like current NAV, CAGR, exit load, expense ratio, sectors, and invested stocks.
Step 5: Select the ‘SIP’ option
Click on the ‘SIP’ option from the available investment options – ‘Buy’ and ‘SIP’. You can also start a SIP to invest in bank nifty index funds for potential returns of the banking sector.
Step 6: Enter SIP details
Enter the initial investment amount, regular installment amount, date of investment, and frequency of installment that you can set on a weekly, monthly, or quarterly basis.
You can also set up an automatic increment of the SIP amount by adding the percentage of increment and the date from which you want to increase the SIP amount. If you remove the date, it will increase the SIP amount to 1st January every year.
For example, if you put 10 in the increment box and don’t set any date, your SIP amount will increase by 10% on the next 1st of January.
Step 7: Click on the “Create SIP” button to complete your order.
Once you’ll click “Create SIP” and then “Confirm”, a new window will open to ask you to “Pay now”.
You’ll move to the e-Mandate page where you have to authorize the bank to make regular payments to invest in that mutual fund. You may like to read how to invest in Sensex through mutual funds that track the performance of the index.
Things to Keep in Mind While Investing in SIPs
- Invest for the long term: SIPs are designed for long-term investments, and it is recommended that you stay invested for a minimum of five years.
- Diversify your portfolio: To reduce the risk associated with investing in SIPs, it is recommended that you diversify your portfolio. You can do this by starting multiple sips of different mutual funds.
- Go with an old mutual fund: Check out if the mutual fund you are going to invest in has more than 5 years of record or not. That will assure you the fund is giving stable returns for a longer period of time and your risk of losing money could be less.
- Monitor your investments: After you have started investing in SIPs, it is essential to monitor your investments regularly. You can do this by checking the NAV (Net Asset Value) of the mutual fund and tracking the performance of the fund.
Investing in the SIP can be a great way to grow your wealth over time by investing in the share market at regular intervals. You can begin to build a decent portfolio by starting small even with a Rs 500 monthly SIP and gradually keep on increasing the investment amount.
You can start investing in SIPs with as little as Rs. 500 per month. There is no upper limit on the amount you can invest in SIPs.
Yes, you can change your SIP amount or stop investing in SIPs altogether.
Most mutual fund companies allow you to modify or pause your SIPs at your convenience. You can increase or decrease the number of your SIPs, change the investment frequency or stop your SIPs altogether.
However, if you redeem your units before the completion of the minimum investment period, you may have to pay exit load and face tax implications.
The minimum investment amount for SIPs can be as low as Rs. 100 and there’s no limit on the maximum amount.
The investment horizon for SIPs depends on your financial goals, risk appetite and investment horizon. However, it is advisable to stay invested for a minimum of 5-7 years to get the maximum benefit of SIPs.