Before investing in a mutual fund scheme, it is important for investors to be sure of three key factors. First of all, which fund house one should invest with. Second, which mutual fund scheme to choose such as index fund, gold ETF, large cap, small cap, so on and so forth.
And finally, whether to invest in a lumpsum or via systematic investment plan (SIP).
Here we will explain the concept behind an SIP and how can one start one. Systematic investment plan is a means to invest in a mutual fund scheme. SIP can be set up for any tenure, daily, weekly, monthly or quarterly.
For example, when you want to invest in Tata Digital India Direct Growth Plan. One way to invest is to invest a minimum of ₹5,000 in the scheme. This would be a one-time payment.
Although one can make any number of such “one-time” payments voluntarily, but there is no compulsion to do on. The second way is to make small regular payments every month, or week or quarter. The small payment can be as low as ₹500.
SIPs have lately become very popular among retail investors. The number of mutual fund SIP accounts stood at 6.36 crore. And the total amount collected through SIP during March 2023 was ₹14,276 crore, reveals the latest AMFI data.
These are the steps to follow to start an SIP:
1. First of all, investors should arrange all the necessary documents which include identity proof, PAN (permanent account number) and proof of address.
2. Second. Submit all these documents to complete KYC (know your customer) registration.
3. After becoming KYC compliant, one has to create an account with an asset management company (AMC).
4. Choose the right plan that aligns with your financial goals.
5. Decide the investment amount that you want to make. For an SIP (systematic investment plan), the minimum amount is usually very small: ₹500 a month or even lower than this in case of weekly SIP.
But one must ensure that the monthly contribution should be considerable enough to help you achieve financial goals.
6. Make sure to opt for SIP and not lumpsum before you make investment in the fund scheme.
7. The AMC may give you multiple options of making payment towards SIP i.e., through auto pay UPI or through bank.
8. Finally, you can submit the form to carry out the transaction.