Financial institutions in India offer different investment solutions with flexible features to enhance the financial benefits to their investors. A systematic investment plan is a tool that helps you invest in a mutual fund regularly. It is comfortable and beneficial in the long term. However, you must understand its meaning and take the right steps to ensure maximum benefits from such investment solutions. Here is a detail about how to start investing in the systematic investment plan(SIP).
Before we learn how to invest in SIP, let us try to understand what it means.
What is a Systematic Investment Plan?
A systematic investment plan is a mode of investing in mutual funds. When you plan on the systematic investment plan, you will invest a specific fund regularly towards the chosen fund option.
A mutual fund will have a pool of investors having a common investment objective in the financial securities market. An Asset Management Company(AMC) will collect the fund. The fund collected will be invested in varied financial securities by the fund managers from the mutual fund house. The returns will be based on the price movement of the associated securities in the fund. When you cannot invest in such a mutual fund as a lump sum, you can choose to invest regularly, choosing the frequency of payment such as monthly, semi-annually, etc.
How to Invest in SIP?
Now that you have realised the meaning of SIP investment let us understand how to invest in it. Here is a step-by-step guide.
- Analyse your financial objective - Before making an investment decision, it is important to analyse the financial objective. For example, your objective for the investment in SIP can be to pay for your higher education in a foreign university after 5 years. Analysing the financial objective will help you determine the required funds and the timelines to ensure the same. Furthermore, based on the timeline and considering the inflation rate, you can precisely calculate the required funds and the rate of return.
- Choose the mutual fund company and the fund option - Financial institutions such as banks and stock brokers offer mutual funds. The mutual fund will be based on varied financial securities across different sectors to diversify the portfolio. You can decide on the mutual fund to invest in based on your risk appetite.
Before making the SIP investment choice, analyse the AMC track record, performance against a benchmark, consistency in providing the returns, fund manager's experience and the Net Asset Value(NAV) of the fund option, etc.
Mutual fund companies also provide the online SIP calculator to help you choose the right policy tenure based on the expected rate of return and the target amount. You can decide on the monthly SIP investment based on the target amount and the policy tenure. The calculator will detail the rate of return based on your input which will help you determine the ideal mutual fund option.
There are also other applications that prompt you to enter the target amount, expected rate of return and the period of investment to find the required monthly investment amount and the related mutual fund options.
- Complete the KYC(Know Your Customer) process - To invest in SIP, you must be KYC compliant. With the advancement in technology, you can complete the KYC procedures online. You will have to provide your identity proof, address proof, PAN, aadhar card details, etc. In addition to the eKYC process, You may have to complete the in-person verification process either online or offline, based on the terms and conditions of your chosen fund house. After completing the KYC norms, you can create a new account with the fund house.
- Provide the SIP details - On completing the verification process and choosing the mutual fund option to invest in, you need to provide the crucial SIP details. The details include the frequency of making the payment, such as weekly, monthly, quarterly, etc., the specific date you want to invest periodically, the investment period and the amount. You can also opt for the auto-debit option instead of remembering the payment date at regular intervals and making the payment.
- Start investing in the SIP - After you have given the relevant details, you can start investing in the SIP. The amount will get debited from your account, and your portfolio investment fund will be reflected in your online account for reference at any time.
While mutual funds can help you increase your returns and accumulate wealth in the long term, it is important that you also plan for financial investments that can secure your family in the event of your unexpected demise. And, it is an ultimate requirement if you are the sole earning member of your family.
Life insurance investment is ideal in such scenarios and even otherwise. Insurance providers offer life insurance plans with flexible features to help customise the product solution to your advantage. For example, our Tata AIA policy provides varied payout options such as regular income for a certain period, lump sum or a combination of both regular income and lump sum. It is applicable for the maturity benefit and the add-on rider# payouts as well. You can also increase the sum assured at different milestones in your life. And with the advancement in technology, the modifications made to your life insurance details will get reflected in your online account for your reference.
Investing in financial instruments such as mutual funds helps create wealth considering your different sources of income and risk profile. A systematic investment plan is a tool to regularly invest in such mutual funds through a long policy tenure. You can start investing in the SIP by analysing your financial objectives, choosing the mutual fund house and the fund option, completing the KYC verification, providing the SIP details, and investing in it. So, evaluate the different mutual fund options to make the right choice and stay invested to maximise the returns!