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A mutual fund SIP or Systematic Investment Plan enables one to invest a fixed desired amount at regular intervals in mutual fund schemes, which in turn invest in the markets. It helps us build long term wealth with the benefit of power of compounding and rupee cost averaging. It essentially means spreading out of your investments over the period of investments which helps to average the cost of purchase and beat volatility. This is how small and medium sized mutual fund investors in India can build a veritable savings pool with minimal risk and professional management.
In SIP investment an investor chooses an amount to be periodically invested in a chosen sip mutual fund for a certain period of time. The investor can chose the frequency, which can be monthly, quarterly, weekly or even daily. Once a mandate is given by the investor while beginning the SIP Investment, the amount gets debited from their bank account in the chosen frequency and date, without having to worry about it. Thus, this is a safe, convenient and transparent process that investors can continue for a long time period, in order to inch closer towards financial goals.
Having known about the basics of SIP investment, here are the steps to invest in it –
Identification of financial goals – Before embarking on the investment journey, one should know their destination in terms of the financial goal they want to achieve. This helps to decide whether to invest for the short, medium or long term. It is, however, advisable to invest in SIP for the longer duration, in order to potentially yield higher returns.
Selection of SIP – Based on risk bearing capacity, financial goals and time period of investment, one needs to make a sound decision on which mutual funds to invest in. For example, if one can invest for the long term – say 5 years or more, it is advisable to go for equity funds.
Contacting the AMC– Based on the SIP selected, an investor can either invest online by visiting the website of the AMC or going to their office and filling out a form for SIP investment.
Investing – The last step, after all the above elements have been decided, is to make the investment of the desired amount in SIP Mutual fund. This is a smooth and hassle free process, which can be completed online or offline.
With minimum investments, one can gain maximum returns from their SIP investments. With patience, disciplined investing and patience, financial goals can be attained. To understand this better, here is a simple example – If one starts investing at the age of 20, an amount of RS. 10,000 per month, in a chosen fund, their sip investment corpus can become more than 23 lakhs, over 10 years, assuming the rate of return is 12% p.a. So, by the time the investor turns 30, they have a substantially big corpus as a cushion during exigencies. Hence, saving and investing early, with discipline, can truly help.
The above calculation can be performed in few seconds by using a SIP calculator.
In this read, we tried to better understand the concept of mutual fund SIP investment and how to begin the process, for the creation of a corpus. One needs to customise the process of investing, based on their nature as an investor, for truly gaining out of the process.