SIP in Mutual Funds or Systematic Investment Plan is a periodic investment option wherein the investor can invest in mutual funds in installments at a regular frequency, like weekly, monthly, fortnightly, or half-yearly. There are several advantages of investing through SIPs.
Why should one invest in SIP in mutual funds?
- Low Investment
- Productive for Savings
- Less likely to get affected by market fluctuations
- Wealth Creation
- Flexible
- Zero Penalty for insufficient balance
- Can be stopped anytime
SIP mutual fund can be started with a small amount of Rs 500 from your regular savings. You do not need to have a large amount to invest.
Through SIP mutual fund you can invest the money which otherwise you would have spent on some discretionary item; therefore, SIPs make your savings more productive.
SIP mutual fund makes market timing irrelevant. As no one can predict accurately how markets will behave, by investing a small amount regularly, in both rising and falling markets, you can benefit from Rupee Cost Averaging and get superior returns over a long investment horizon.
SIPs can create long term wealth through the power of compounding.
SIP Mutual Funds are very flexible as you can choose the investment frequency and the dates when you want each installment to get debited from your bank account.
There are no penalties if you have an insufficient balance in your bank account on the ECS date. However, if the ECS fails consecutively for a few months, the SIP in the mutual fund might get canceled.
SIP mutual fund can be stopped at any point in time by writing to the Asset Management Company (AMC) or Registrar and Transfer Agent (RTA).
What do you need to start a SIP Mutual Fund?
- As per SEBI regulations, you need to be Know Your Client (KYC) compliant to invest in mutual funds. You can fulfill KYC requirements by submitting filled in KYC form with your photograph and self-attested documents like PAN and Aadhar or any other document for verifying the address proof. The KYC form is available for download on AMC websites and R&T agent’s websites.
- However, in-person verification will be required and you will have to carry original identity and address proof documents to the AMC or R&T office. AMFI registered mutual fund distributors are also authorized to conduct in-person verification. If you submit your KYC documents through an AMFI registered distributor, he or she can conduct the in-person verification at your place and you are not required to go to the AMC or R&T office for in-person verification.
- However, if you are an existing mutual fund investor, you are likely to be KYC compliant, but you should still check if your KYC is verified or not before investing again.
- You must have a bank account as generally cash investments are not allowed in mutual funds. You have to provide your bank account details (Bank Name, Address, Account Number, IFSC, and MICR code) in your mutual fund application form. A copy of the canceled cheque of your bank account is required as a supporting document as mutual fund SIP ECS will be debited from this account and also the redemption proceeds will be credited to this account.
- Before starting SIP in Mutual Funds, you have to select a good mutual fund scheme in which you want to invest through SIP. You have to choose an option - growth option or dividend option. Within the dividend option, you have to choose the ‘dividend payout’ or dividend reinvestment' option. You also have to mention the AMFI Registration Number (ARN) and the EUIN (Employees Unique Identification Number) of your distributor. A good mutual fund advisor will always help you with your investments in mutual funds.
- For mutual fund SIPs, in addition to the above formalities, you are also required to submit the Auto Debit ECS Mandate also known as the SIP registration form. The ECS mandate authorizes your bank to debit the SIP installment amount from your bank account on the date chosen by you and remit it to your mutual fund account. You can choose multiple dates in a month. Investors should note that your signature in the SIP debt ECS mandate form should tally with that of your signature in the bank’s record.
People Often Ask
- How can I invest in SIP directly in mutual funds?
- What is the procedure to start SIP?
- What is the best time to start a SIP?
- Which is the best mutual fund to start SIP?
- Can I invest directly in mutual funds?
To invest directly in SIP online- Visit the MutualFunds Utility Portal (MFU) and choose a direct plan. For offline investment, you need to fill the application form and submit it to the concerned mutual fund office or to its agent in your area.
Register yourself with a mutual fund →Complete the KYC (know your customer) procedure.→ start SIP online→ Choose the desired SIP plan
The best time to start a SIP is when the market is at a loss since mutual funds are subject to market risk and are governed by market conditions.
Some of the best mutual funds to start SIP are offered by SBI bluechip fund, ICICI bluechip fund, Tata India tax saving funds, etc.
Yes, if you have the proper knowledge of mutual funds and the stock market then you can easily opt for a direct plan on a mutual fund utility portal.
Conclusion
Starting in SIP in a Mutual Fund is quite simple if you can understand the process. The best part of SIP in a mutual fund is that, once you start a SIP, your investments are in an autopilot mode which helps you in creating wealth in the long term.