A mutual fund Systematic Investment Plan (SIP) allows you to invest small amounts regularly in a mutual fund scheme over a longer period of time. The key benefits of SIP are rupee cost averaging and compounding. As you invest every month, you will buy more units when the NAV is low and fewer units when the NAV is high. Over time, this helps bring down your average cost per unit. Additionally, compounding allows your investment corpus to grow at a faster rate as the power of compounding works on a larger invested amount month after month. Read on to find out more.
Choose the right fund
There are several categories of debt mutual funds to choose from – liquid funds, ultra short duration funds, low duration funds, medium duration funds, medium to long duration funds, long duration funds, dynamic bond funds, corporate bond funds, banking & PSU funds, gilt funds and more. Evaluate your investment horizon and risk appetite to decide which category to invest in. For very short term goals of a few months, liquid and ultra short term funds are suitable. For goals 1-3 years away, short duration, corporate bond and banking & PSU funds are good. Medium and long duration funds can be considered for 3-5 year goals. Dynamic bond funds provide flexibility to manage duration and can be considered for goals 3 years away or more. Gilt funds carry sovereign risk and are suitable for goals 4-5 years away.
Choose the right sip amount and frequency
Decide the monthly SIP amount based on your income, saving capacity and financial goals. Avoid starting multiple SIPs with very small amounts. Combine and start one or two bigger SIPs for better results. Opt for monthly or quarterly frequency. Monthly SIPs allow disciplined investments every month while quarterly SIPs require a higher amount per installment. Evaluate your cash flows and choose accordingly.
Complete the KYC process
To start investing, you need to complete your KYC (Know Your Customer) documentation with the fund house. This involves submitting your PAN card copy, address proof and photos along with completing the KYC form either online or physically. If your KYC is already registered, it will automatically be updated. KYC is mandatory as per regulatory requirements.
Open a demat account
Though not compulsory, having a Demat account makes it convenient to track your mutual fund investments. The units will be credited to your Demat account after each SIP installment. The Demat account will provide a consolidated view of your portfolio and help you track growth easily. You can open a Demat account with the fund house or a stock broker. Submit required documents like PAN card copy and address proof.
Start an SIP
SIPs can be started through the fund house website, online broker platforms or physically through the fund house branch or distributor. Online SIPs are quicker and more convenient. Browse for the fund, fill up the SIP form, register your bank details and complete the mandate registration either through NACH or by providing post-dated cheques. For offline SIPs, submit physical applications with supporting documents.
Login online to track your SIP performance regularly. Review the total amount invested, current value and returns. Ensure there are no payment failures by checking your SIP statements. Review your fund selection every year to ensure it is still in line with your goals and risk profile. Make changes if required. Increase SIP amount periodically to counter inflation or accelerate corpus growth.
Understand SIPs, research and select the right debt fund, complete KYC, open a Demat account, start the SIP online or offline and keep reviewing its performance regularly. Approach SIPs systematically and give your investments time to grow.