How to start an SIP investment - Here’s a quick guide.

how to start sip investment
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Much like you can acquire a new skill or develop a new habit by practising it regularly, you can grow your wealth by investing small sums at regular intervals. SIPs or Systematic Investment Plans are a convenient way to pursue your goal of financial stability by using the "consistency is the key" principle. It is also true that the younger you start saving and investing, the better your gains will be when you near your retirement age. Thus, a timely SIP can help you attain your long-term objectives with commensurate associated risks.

Here, we'll help you understand how to start SIP investments and why it is always better to invest in SIP online as early as possible.

Understanding SIPs and their benefits

Starting an SIP involves investing a fixed or flexible amount at periodic intervals, usually monthly or quarterly, in a mutual fund. This is a disciplined approach to investing, and it inculcates healthy saving habits, helping you build a sizable corpus over time. Here are some benefits of investing in SIPs:

  • Low starting amount: You can start an SIP with an amount as low as Rs.100. Thus, SIPs are affordable for all kinds of investors and do not put a burden on your other financial obligations.
  • Entry point: With an SIP, you do not have to 'time' the market for a suitable entry point. Since SIPs are regular and periodic, you may buy lesser units of a scheme when the market is booming and more units when the market is down. It all averages out in the end.
  • The power of compounding: SIPs use compounding to help grow your corpus over the years. Plus, SIPs allow you to weather market downturns and use the 'Rupee cost averaging' principle to maximise return potential.
  • Flexibility: Most SIPs allow you to increase or decrease the investment "instalments" depending on your financial situation.

How to start SIP in India?

If you want to know how to start an SIP in India, you must first ensure that you have all the relevant documents (such as PAN Card, address proof, and a passport-size photograph) at hand. Also, ensure that your account number and bank account details are updated everywhere. Here are the steps to invest in SIP online:

  1. Search: Seek out a mutual fund scheme that suits your investment goals, risk profile, and investment horizon. Compare various mutual fund schemes basis their asset allocation, expense ratio, and fund managers' experience.
  2. Register: Register with your chosen mutual fund house online. You will have to submit your KYC (Know Your Customer) documents like your Aadhaar Card, PAN Card, etc, and bank details to complete the registration process.
  3. Choose amount/frequency: Select the amount you want to invest in the SIP and the frequency of investment (monthly, quarterly, etc.). The minimum investment amount may vary from one fund to another.
  4. Bank mandate: You need to set up a bank mandate for SIP to automate your investments. This allows the mutual fund company to deduct the SIP amount from your bank account automatically.

Things to consider before investing in SIP

If you want to put your money into any financial product, it is mandatory to carry out a basic assessment of your financial health and objectives. Here is a checklist to consider before you invest in SIP online:

  • Risk profile: Understand your risk profile before investing in SIPs. If you are comfortable taking higher risks, then equity-based SIPs may be suitable for you. However, if you prefer lower risks, then debt-based SIPs might be a better option.
  • Time horizon: If you have long-term financial goals, then investing in SIPs with longer tenures may provide better returns.
  • Asset allocation: Whatever your risk profile and investment goals, it is recommended that you diversify investments across equity, debt, and other asset classes.
  • Taxes: Understand the tax implications of your SIP as gains are classified under LTCG and STCG (depending on the holding period) and taxed accordingly. You can consult a tax advisor for the same.
  • Start early:The sooner you begin making SIP investments, the better corpus you can build over time. It is advantageous to invest in SIPs regularly to attain your financial goals in a disciplined manner because they help average out the cost of investments.

How does SIP work?

Your monthly/quarterly SIP sum is used to purchase units of a mutual fund scheme. The price of units is based on the Net Asset Value (NAV) of the fund on the day you invest. As you continue to invest in the SIP, the number of units you hold in the mutual fund scheme increases. Over time, as the NAV of the fund potentially increases, so does the value of your investment.

In conclusion, SIPs aim to merge the power of compounding with rupee cost averaging to deliver long term returns. Rupee cost averaging means that you buy more units when the NAV is low and fewer units when the NAV is high, thereby averaging out the cost of investment over time.
Now that you know how to invest in SIP, let’s understand how does an SIP work with an example of Rs.1000 instalments. If the NAV for 1 unit is Rs.10, you will be allocated 100 units for the initial instalment. If the NAV increases to Rs. 20, you will be given 50 units for the subsequent instalment. Conversely, if the NAV reduces to Rs. 5, you will be allotted 200 units for the third instalment. Therefore, you will have 350 units by the end of the third instalment. This is the principle of ‘rupee-cost averaging’ and is crucial for investors and it helps deal with market volatility.

How to calculate your SIP Returns?

You can use a SIP calculator to compute the returns from your SIP investment. The calculator is based on the compound interest formula. You must enter the following values to get the result:

  • Amount of investment
  • Frequency of investment
  • Duration of investment
  • Expected rate of return

For those who aren’t fazed by maths and numbers, here is the actual formula that the calculator deploys:

M = P × ({[1 + i]^n – 1} / i) × (1 + i)
(M = amount at maturity, P = amount invested at regular intervals, n = number of payments made, i = periodic rate of interest)

To sum it up, an SIP is an affordable and convenient way to begin your journey to wealth accumulation. SIPs use the principles of compounding and rupee cost averaging to leverage your investment and help you to meet your financial goals. The best part is that you can start an SIP with a small amount. This allows you to honour other financial commitments without compromising on investing for the future. So, just figure out a suitable SIP amount, your risk appetite and financial goals, and start investing in an SIP, today!

Let’s say you have decided to start an SIP of Rs. 1,000 per month for 10 years and expect a 10% rate of return. With these inputs, the SIP calculator online will show you that will earn Rs. 2,06,552 on your total investment of Rs. 1,20,000. This comes to an absolute growth of Rs. 86, 552. (For illustrative purpose) You must note that these figures are approximates and your actual returns will depend on the market performance and the fees charged by the fund house, among other things.


Can I start SIP at any time or when the market is high?

Yes, you can start SIP at any time, regardless of the market conditions. The objective behind SIP is to invest regularly over a long period, which reduces the impact of market volatility.

Is SIP safe to invest in?

SIPs are a relatively stable investment option as they allow you to invest in a diversified portfolio of stocks or bonds over a long period and start with a smaller ticket size. However, like any investment, there is always some risk involved. The returns on your SIP investment may vary depending upon the market conditions, and there is no guarantee of fixed returns.

Are SIPs good for new investors?

Yes, SIPs can be a suitable option for new investors as they provide a disciplined way of investing regularly over a long period. Additionally, investing in SIPs allows you to start with small amounts, which makes it easier for new investors to get started.

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.

This document should not be treated as endorsement of the views/opinions or as an investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.