Einstein quoted “Compound Interest is the 8th wonder of the world”. With the help of compounding small amounts as low as Rs. 500, if regularly invested, can convert into a decent corpus after some time – SIP is one way through which investors can do that. You can calculate using any SIP return calculator or mutual fund SIP calculator.
What is SIP?
A systematic investment plan (SIP) is a financial vehicle that helps investors drive their funds into mutual funds to buy units at regular intervals. Using SIP it is possible to invest as low as Rs.500 on a recurring frequency. The intervals may be weekly, monthly, or quarterly.
Steps of Investing in SIP
1. Open a Demat account
To invest in any mutual fund or stock, one should have a Demat account. Nowadays, opening a Demat account takes only 24 to 48 hrs. Most of the stockbrokers already have their direct mutual funds/zero commission mutual funds. If you already have a Demat account, it is easy to start your SIP with your broker mutual fund service.
If you do not have a Demat account, approach your nearest mutual fund house to open it. You can do it online too.
2. Choose the fund with less AMC charges
Mutual funds have charged an investor in the form of exit loads, transaction charges, entry loads etc. So, choose the one having less AMC (Asset Management Company) charges.
3. Select a profitable mutual fund
Along with choosing the fund with fewer AMC charges, investors also need to select a profitable fund. To do that, the investor has to research the schemes, fund house, and fund manager.
4. Understand the risk appetite
Before starting the SIP, the investor needs to understand his/her risk appetite. Generally, investors with younger age prefer high-risk funds to achieve high returns. On the other hand, the older ones go for low-risk ones. So, it is always better to know the risk appetite before investing. The fund with more equity exposure has high risk and returns. On the other hand, a more diversified fund that invests in different asset classes has low returns and less risk.
5. Know your investment objective
An investment without a goal is not practical. If the investor has a financial goal in mind, then he/she can invest in a fund that can offer that kind of return. CRED’s SIP calculator can help the investor to calculate the goal amount.
6. Set up automatic mandates
SIP is all about discipline investing. Whether the market is bullish or bearish, the investor has to stick to his investment plan. He has to set up a particular day in a month or a week or a quarter to buy the fund house units. To do this, the investor has to maintain sufficient funds in the Demat account. In case of failing so, the fund cannot place the order. That is why e-mandates can be used to solve this issue. After setting up an e-mandate, the amount will be automatically deducted from the account on the agreed date to place the order with the fund house.