How to Invest in SIP: A Complete Guide for Smart Investors

Understanding Mutual Funds

A mutual fund is a collection of money from many investors, which is then invested into equity, debt, or a combination of both in accordance with the objective of the fund. It is professionally managed by a fund manager who makes the investment decisions on behalf of the investors.

In exchange for investing in the mutual fund, the investor receives units of the mutual fund itself, and the investor earns a return based on the performance of these underlying investments.

Mutual funds, like individual stocks, are subject to fluctuations in the market. Therefore, the value of a mutual fund can increase or decrease. However, oftentimes, the risk associated with investing in a mutual fund is compensated by an opportunity for a much higher return over time.

Mutual fund schemes carry different levels of risk, which is mentioned on the prospectus of the scheme. Therefore, investors may choose from a variety of products or schemes from different Asset Management Companies (AMCs) based on their investment goals.

What is an SIP?

A Systematic Investment Plan (SIP) is a way to invest in mutual funds where you invest a fixed amount of money at regular intervals (typically every month). Each investment will purchase a certain number of mutual fund units and allow investors to build wealth over time.

Unlike savings accounts, SIPs can provide much better returns in most cases due to exposure to equity and debt markets and the impacts of compounding-your returns can invest in securities too before the investment period lapses.

SIPs may be subject to market risk but are generally seen as one of the most efficient and least risky means of building wealth over the long term.

How to Invest in an SIP?

There are several Asset Management Companies that provide SIPs, and each of them has several schemes that may suit different risk-return profiles.

Here are the steps to begin investing in a SIP:

Assess Your Investment Objective

Understand your financial goals and risk tolerance. Use the intended investment horizon and expected returns to select the appropriate mutual fund scheme.

Select Your Investment Route

You can invest directly through an AMC, or invest through other intermediaries such as banks or brokerage firms. Intermediaries may charge you a commission for advice or for executing the transaction.

How to do KYC?

Before you can invest in any mutual fund, you need to submit Know Your Customer (KYC) details. You can do this either online or offline. The documents you need are as follows:

• Proof of identity (Aadhaar, Voter ID, or Driving Licence)
• Proof of address.
• Permanent Account Number (PAN) card (this is necessary if you are investing above ₹50,000).
• Cancelled cheque.
• Passport-sized photograph.

KYC details can be submitted directly to an asset management company (AMC), a licensed intermediary, or to a central KYC registration agency.

This is now centralised (cKYC), so once your KYC has been verified, the investor can use that KYC to invest in as many mutual funds, across AMCs, as they want.

How to Submit Your KYC Online and Offline

Online: Go to the webcast of the AMC, your broker or a KYC registration agency and do this digitally.

Offline: Submit your documents in person at a bank branch, AMC office or brokerage.

An in-person verification can be done through a short video call. If required, you will then receive a 14-digit KYC Identification Number once approved, which can be used for all future investments.

How to Start SIP?

Following KYC approval, decide on your preferred mutual fund scheme and fill out the details of your investment in the following areas:

• Monthly investment schedule
• Incremental top-up amount (usually yearly)
• Investment duration
• Bank account auto-debit
• Preferred deduction date
• Once again, investors can create a monthly deduction schedule through standing instructions or by placing the AMC as a biller through net banking.