How To Start a SIP- Step by Step Guide

Written on Friday, July 7, 2017
By Mitali Sharma

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Of late, through various communication platforms, be it TV, Social Media, Radio or the Internet, the awareness pertaining mutual fund investments has increased immensely. As a result, there has been a shift in interest, and investors, even the millennial investors, have opened up considerably towards MF investments. However, there are many investors who talk about it, want to go ahead with it but sill not investing in it. So why people are not investing in mutual funds.


There can be many reasons, but the most common reasons are the following:


1. Not handy with lump sum money 


2. Don't know when to enter and exit the market 


3. Don't want money to get locked


4. Risk-averse and naive to mutual funds 


The one solution to all these challenges is Systematic Investment Plan (SIP). SIP gives you the following benefits:


1. You can make an investment of amount as small as Rs. 500 per month


2. You will invest regularly, so no need for market timing


3. By investing in open-ended funds you can withdraw your money at any point of time 


4. SIP is an easy and simple route, you don't need to be an expert to start your investments 


As an investor, you might have heard about SIP or have seen commercials on this. SIP is not a product but a way to invest in mutual funds.


What is SIP?


To explain it precisely, SIP makes you invest a fixed amount (as small as Rs. 500 or Rs. 1000) on an MF fund of your choice at a regular interval (monthly or quarterly). The process is like that of recurring deposit. The only difference is that the returns are market linked.


How SIP Differs From Lumpsum?


In lump sum investment, you make the one-time investment and thus buy your units at one go. Suppose you invest Rs. 20,000, then you will buy units collectively at the rate of NAV per unit on your date of investment. If per unit NAV is Rs, 20, then your Rs. 20,000 will buy you 1000 units.


In Systematic Investment Plan, you don't invest at one go, rather you invest at a regular interval. So here you get to buy your units on a monthly basis. When the market is low you buy more units and when the market is high you buy fewer units. At the end of your investment tenure, you get the cumulative numbers of units, and there are possibilities that through SIP route you will buy more units than lump sum investment. To understand better, check the illustration below:


Investor A (investing through SIP) buys 267 units more than investor B (investing lump-sum amount) despite the fact that both the investors had invested equal amount for the equal duration of time. 


How to Start a SIP? 


Step 1: Be KYC Compliant (Know your customer)


First of all, to invest in mutual funds, you need to be KYC compliant. For this, you just need to fill your KYC form, submit your address proof, PAN, identity proof and passport size photograph. This is just a one-time exercise. You can get this done online through eKYC


Step 2: Find the Right Fund 


You can invest in SIP directly through Asset Management Companies or through intermediaries, which are generally investment services companies. When it comes to investing in MF, the only challenge is to select the right fund. To get the right support, you can invest through an Investment Services Company. They will help you in identifying the right fund - equity or debt, balanced or other funds. These service providers study the market trends, fund's past performance and then recommend you a fund based on your requirement and investment attitude. Basically, they do the homework for you. They can also get your KYC done. They will provide you the application form of the fund you have selected and will direct you how to fill it. The process becomes more convenient! 


Step 3: Decide Your Monthly Investment Amount 


In the form, you have to specify how much amount you want to invest. If you are doing your SIP to meet a financial goal, and want to invest accordingly, then you can use online SIP calculator to know how much amount you should be investing monthly to accumulate your desired corpus. Here, again an Investment Services Company can help you.


Step 4: Decide Your Payment Date 


First, decide whether you want to make a monthly investment or quarterly investment. Then decide on which date you want to make the payments. Remember this date will get fixed, thus choose wisely. Then choose your mode of payment. You can get the amount auto debited from your account or can choose to pay manually or through post dated check. 


Step 5: Submit Your Form


After filling the asked details in your form, you just need to submit it to the AMC. Again if you are doing this through an investment service provider, then everything will be very easy as you will always have the assistance of professionals. They will submit the form on your behalf. The AMC will send you the subsequent emails to keep you informed about your due date, payments made etc.

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