Here’s a little secret: You can create a large amount of wealth by systematically investing small amounts of savings through a Systematic Investment Plan or SIP.

You don’t need to follow stocks, read lengthy balance sheets, or watch out for the latest hedge fund if you’re just starting out. Instead, most experts advise beginners against investing in the stock markets or other high-risk areas. SIPs provide a relatively safer avenue to invest small sums while delivering significant returns.

What is a SIP?

SIP is a facility where you have the freedom to invest a fixed amount of money in mutual funds consistently. Just like an EMI, you need to invest a certain amount of money periodically in SIP. However, in EMIs, you repay a loan which leads you to lose the amount. In a SIP, you earn the amount you invest plus profit and utilize the funds to fulfill your future dreams.

You can park as little as Rs.500 as SIPs into mutual funds of your choice and turn it into a workable investment option.

Here are some aspects you need to consider before investing in a SIP:

Understand Your Objective

Why do you want to invest? Do you have an end goal in mind or a timeline before which you’d like to achieve that goal?

You can have one fixed goal or multiple ones. But it’s important to understand your financial objective so that you can choose a suitable plan and accordingly work towards realizing it.

Some practical goals could be saving up for travel or your wedding, buying that dream house or the latest car, preparing for retirement, or maybe following your passion. Whatever the goals, be clear about them before starting a SIP.

Identify Your Risk Appetite

You must also understand your risk appetite before investing. A general rule of thumb in investment is that the higher the age and financial responsibilities, the lower the risk tolerance. Remember, if you wish to gain a higher return on your investment, you need to increase your risk appetite.

Choose a Profitable Mutual Fund

When it comes to mutual funds, there are several options available in the market today. However, not all of them might suit your financial goals. So, factor in your financial objectives, risk appetite, and fund performance before zeroing in on a plan.
Also, note that there are different types of SIP:
• Fixed SIP – Fixed monthly payments. You decide the amount when you set up your plan.
• Top-up SIP – SIPs where you increase your investment amount at regular intervals. Say, yearly when you’re due for an increment.
• Perpetual SIP – There’s no fixed end date, and your payments happen continuously till you cancel them.
• Flexible SIP – You can increase or decrease the SIP amount flexibly depending on your cash flows that month.
• Trigger SIP – You can redeem partly or completely once the SIP meets a pre-defined target in terms of time horizon, capital, or index-level triggers.

Decide a Time Horizon

Do you want to invest in SIPs for 3 months, 6 months, 1 year, or 5 years? SIPs allow you to choose the time horizon flexibly depending on your investment objectives.

You can use online SIP calculators to decide what your SIP amount needs to be to fulfill your goals within the time duration you have in mind.

Benefits of SIP

• Flexibility: You can customize your investment amount and duration according to your current cash flows and future financial goals.
• Rupee Cost Averaging: This means you don’t have to worry about investing at the wrong time. The cost of your investments is averaged over time as you continue investing periodically.
• Compounding Power: You can earn returns on returns. That means the profits generated in the investment are added to the initial investment amount, which helps in wealth creation.

Steps to Invest in SIP

There are three simple steps to start a SIP online.

1. Gather the Necessary Documents • Aadhaar card
• PAN card
• Address proof
• Passport size photographs
• Cheque book

2. Complete KYC Log onto the official website of your chosen fund house or retail broker and provide details like name, date of birth, address, and contact details. This step is a one-time process completing which you can start your investment through SIP.

3. Start Investing After completing the KYC, log in from the official website of your chosen fund house or retail broker and start investing. Choose the mutual fund, decide the SIP amount, set a monthly SIP date and the number of months/years you’d like to stay invested.

Paison ki Seedhi Baat

Whether you’re a beginner or a seasoned investor, SIPs can help you achieve your financial goals and lifestyle dreams.

If you’re thinking of getting started with SIP, you can download the My Money App and start saving towards your SIP journey today.