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How to invest in SIP

A Systematic Investment Plan (SIP) is simply a mode of investing in mutual funds.

Key Points

  • A mutual fund is an investment of funds raised from the public in equity or debt.
  • A Systematic Investment plan (SIP) is a mode of investing in mutual fund schemes where some money is invested every month to buy mutual fund units.
  • Mutual funds are offered by different Asset management companies (AMC). Each asset management company offers a variety of schemes with different risk and returns profile.
  • You need to submit KYC (Know Your Customer) details to invest in mutual funds. You can submit KYC details online or offline.

Let’s first understand mutual funds

A mutual fund is an investment of funds raised from the public in equity or debt. A mutual fund is managed by professionals who invest in equity or debt across companies/firms with money raised from investors. The investors are allotted units of the mutual fund on which they expect returns. These returns are subject to market behavior and hence carry a certain level of risk. As with any other stock, mutual funds also reflect the ups and downs in the market But the risk is offset by the prospect of higher returns.

Depending on the terms laid out in the prospectus, managers of a mutual fund can invest only in specific types of shares (i.e. equity), debt or in both equity and debt. Thus, different mutual fund schemes exist, each having a different risk and returns profile. Thus, investors have a wide range of mutual fund schemes to choose from, depending on their risk appetite. Know more about how to invest in mutual funds.

What is a SIP?

A Systematic Investment Plan (SIP) is a mode of investing in mutual fund schemes where some money is invested every month to buy mutual fund units. These recurring deposits could earn much higher returns than deposits made in a savings bank account. This is due to higher returns*(please note that all investments are subject to market risk. Read the offer documents carefully before investing) on equity/debt and compounding of returns, that is, before the scheme matures (scheme period ends), returns are reinvested in the mutual fund.

A SIP offers lots of benefits over a conventional savings account and makes for an excellent long term investment with great returns and low risk. Here's a guide to investing in SIPs.

How to invest in a SIP?

  • Mutual funds are offered by different Asset management Companies (AMC). Each asset management company offers a variety of schemes with different risk and returns profile.
  • Assess which mutual fund scheme best suits your objective. This depends on how much risk you can take and the best return you can expect.
  • Investment in mutual funds can be made directly or through a third party intermediary like brokerage or banks. The intermediary gets a commission for assistance and advice provided.
  • You need to submit KYC (Know Your Customer) details to invest in mutual funds. You can submit KYC details online or offline. The following are the documents to be submitted: Identify proof (Aadhaar ID, Voter ID, Driving licence etc), Address proof, Cancelled Cheque, Photograph and PAN card (for transactions more than 50000 rupees).
  • The KYC details can either be filed with a licensed intermediary (banks, brokerages) or the asset management company (AMC) from which you intend to buy mutual fund units. Since KYC has been centralised (cKYC), you need to submit KYC details only once and you can buy as many mutual fund units as you please from any scheme and asset management company.
  • To file KYC details online, visit the AMC/mutual fund house’s website or your brokerage’s website or a central repository website (KYC registration agency).
  • For offline submissions, visit a brokerage or AMC branch or a bank branch which offers KYC registration services.
  • After submitting the KYC form and after in person verification is done (this can be done through a video call or might not be needed if you are investing through a licensed intermediary), you'll be given a 14 digit KYC identification number that you can use to invest in mutual funds.
  • Now, just choose the scheme you'd like to invest in and fill in requisite details with the licensed intermediary or the AMC, either offline at a brokerage/bank branch/AMC office or online on the intermediary’s website/Asset management company’s website.
  • Details you need to fill in include the amount you intend to invest every month, top up amount (increments in investment amount at regular intervals, usually every year), duration of investment, bank account details for auto deduction of funds every month, date at which deduction should be made etc.
  • You can authorise your broker to deduct funds automatically every month by signing a standing declaration or by just adding the AMC to the monthly biller list on your net banking account.

The advantages of investing via a SIP

  • Investing in SIP offers high returns at low risk. Thus, SIPs make for excellent long term investments.
  • Rupee cost averaging reduces risk due to volatility of equity prices significantly. This is because, at a higher price, fewer mutual fund units are bought at the fixed investment amount while at lower price, more units are bought. Thus, more units are bought at lower prices reducing the risk of incurring losses.
  • As dividends are used to buy more mutual fund units, there is compounding of investment and returns are high.
  • SIPs are convenient as even small amounts invested monthly can fetch huge returns.

Upstox offers a highly simplified and integrated platform to invest in SIPs. You can get all relevant information on mutual fund schemes at Upstox’s mutual funds platform. The process of investing is hassle free and funds are deducted automatically every month from the linked bank account. Open a demat account with Upstox today and build wealth in a smart way.

Wrapping up

  • A SIP is a recurring investment in mutual funds.
  • To invest in mutual funds, you have to file KYC details online or offline.
  • You can invest in mutual funds through SIP either online or offline.
  • Money is deducted automatically from your bank account every month.
  • SIPs offer great returns, at lower risk.
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