A SIP or Systematic Investment Plan helps an investor to park their investment regularly in the mutual fund schemes. It is one of the smart ways of investing money in mutual funds. Thorough SIP an individual can invest a certain set of pre-decided money at a regular interval of time be it weekly, monthly, quarterly, semi-annually or annually.
The concept of SIP is planned in such a way that it generates the habit of savings amongst individuals as one can start an investment with as little as Rs 500, thus build wealth for the future.
By investing in SIP, one can start a disciplined savings habit. Discipline towards investment is the key to build wealth for the future. By investing through SIP, the investor will commit themselves to save regularly. Every investment is a step towards achieving financial objectives.
How Does a SIP Work?
A systematic investment plan or SIP is a flexible and convenient investment plan. Here, the money towards the scheme will be auto-debited from the investor's bank account and the same will be invested towards a specific mutual fund scheme. An investor will be allocated a certain number of units and this will be based on the market rate or net asset value (NAV) for the day.
During every investment, an additional number of units of the scheme will be purchased at the prevailing market rate and the same will be added to the investor's account. Hence, the units will be purchased at different rates and investors will stand to seek benefit from the Rupee-Cost Averaging and Power of Compounding.
Pre-Requisites for SIP
Before starting a SIP scheme, the investor has to look out for the following list of things.
- Identifying the SIP based on the portfolio, performance, scheme type, financial goals of the investor.
- An investor can initiate investing in SIP either through offline or online mode.
- It is mandatory to have an updated and completed KYC updated.
Through Offline Mode
An investor should duly fill in the form obtained from the fund house or download the form from the fund website. After this, an auto-debit NACH mandate should be filled in. It is necessary to attach a copy of cancelled cheque along with the KYC documents including residential address and identification proof.
Once all the relevant documents are gathered the same should be submitted along with the form at the investor service center or branch office of the AMC.
Through Online Mode
An investor can set up SIP instructions using several online facilities.
Mutual Fund distributors like corporate distributors or banks will provide portals for online transactions of mutual funds. One can set up SIP using any of these portals. If in case, an investor has the bank mandated for auto-debit facility registered with the portal then the same can be used for investing in SIP.
Fund House Website
The SIP can be set up using i-SIP facility through the fund house website. An investor has to enter all the relevant personal details, bank details, SIP. Post this, a URN will be generated on submission. After this, the investor will have to log in to his bank account and add the mutual fund as a ‘biller'. The URN will be required for enabling the SIP instruction.
Mutual Fund Transaction Portals
There are several transaction portals for mutual funds like the ones hosted by the mutual fund utilities (MFU) or by the registrars of fund houses. An investor can initiate SIP using these platforms.