SIP stands for Systematic Investment Plan and is a plan offered by mutual funds to invest in a fixed amount regularly in a mutual funds scheme. This investment can be done on a weekly, monthly, quarterly, semi-annually or annually basis depending on the convenience of the investor. The most popular interval chosen by 90% of investors in monthly investing. A fixed amount is automatically debited from the investor’s account. This amount can be increased or decreased whenever the policyholder feels like it.
How do you start an SIP?
Complete the KYC (Know Your Customer) formalities.
- Arrange for the necessary documents such as PAN card, Proof of Address (like Aadhaar Card, Passport and Voter ID), Passport photograph and cheque book.
- Complete the online verification process by updating soft copies of the documents on the website of the fund house that provides an eKYC facility.
- Complete the in-person verification.
Register for an SIP
- On the website of the fund, the house creates a new account.
- Choose a user ID and password.
- Provide the details of the bank account from which the money for the mutual fund will be debited.
Select the right SIP based on how much you want to invest, when you want to invest and what type of fund you are looking for.
Advantages of an SIP:
- Periodic Investment: When the investment has to be made depends on the convenience of the investor.
- Flexibility: The amount to be invested can be increased or decreased whenever the investor sees fit. You can also discontinue investing in SIP at any time. You can also withdraw the investment at any time during the SIP period.
- Auto-Debiting: The money to be invested is automatically debited from your account.
- Timing the Market: If you are very busy and do not have the time to keep a regular check on the market prices, you can invest automatically with an SIP at all levels of the market.
- Disciplined Savings: It builds the habit of regular saving. Investing through an SIP is a long-term commitment. Since the money gets automatically debited, the investor picks up a habit of saving.
- Tax-Free Long-term Gains: All long-term gains on SIP in equity funds are tax-free. There is no tax on long-term capital gains of equity funds.
- Cost Averaging- The law of averages gives you a benefit in the form of buying more units of the mutual fund when the prices are low and buying less when the prices are high.
So, to sum it all up, investing in an SIP is a great way to prepare for future long-term goals while also being able to bring in a sense of discipline when it comes to your scheduled investing activities.