How To Invest In Systematic Investment Plans (SIPs) Online?

Mutual funds

Mr Gupta has just got his first job and wants to accumulate funds to buy a house within the next ten years. After monthly expenses, he only has a little money left and thus, cannot start a large investment. What is the best way he can work steadily towards his financial goal?

Most experts will agree that Systematic Investment Plans (SIPs) are the best way to build wealth by investing small amounts regularly and consistently. It results in the habit of investing your money to build long-term wealth while minimising risks.

Read along to know how you can invest through SIP online.

What Is SIP?

SIP is an investment vehicle that allows you to invest a small amount periodically towards a mutual fund scheme of your preference. Investors can set the investment parameters, including the investment frequency, amount and the date of each instalment. 

Once activated, the SIP will deduct a fixed amount periodically from your bank account to the mutual fund. The auto-debit feature makes for an easy investing experience and encourages disciplined financial planning. You can also pause and restart investments as per your needs.

SIPs allow you to extend your investment over time, ensuring that you can reach your financial goals. It spreads over investment risk across a long period and lets you benefit from both rising and falling markets. It also allows you to benefit from the power of compounding for better returns.

How do SIPs for Mutual Funds Work?

SIPs allow you to buy units of a mutual fund with a fixed sum at a pre-decided date every week, month or quarter (depending on your plan). Like a recurring bank deposit, the SIP will auto-debit a fixed amount based on standing instructions that you have given to your bank. Each instalment will be used to allocate units of the mutual fund based on the scheme’s latest Net Asset Value (NAV). 

When the markets are down, the SIP purchases more units, while in surging markets, fewer units are purchased. This allows you to benefit from both bull and bear markets. Over time, the purchase costs of fund units average out, leading to more savings. 

Now, let us look at an example to see how SIP investments work. 

Mrs Ghosh has a monthly salary of Rs. 40,000 and has set 10% of her salary as monthly SIP to ABC mutual fund. Over 10 years, she would have invested Rs. 4.8 lakh. This substantial investment shows how consistency and financial discipline can help grow a large corpus. 

Her investment into the capital market saw an average return of 12%. It is not uncommon for a good mutual fund to outperform the market. Thus, her investment would be worth Rs. 9,29,356, a little less than twice her total investment. This demonstrates the power of compounding on investment over many years.

Also Read: What Is A Gold SIP Calculator?

Types of SIPs

1. Top-up SIPs: In this type of SIP, you can change the amount of SIP instalment by a fixed amount. As you start earning more over the years, this option makes it easy to increase your SIP investments. For instance, you can set your top-up SIP to increase monthly instalments by Rs. 1000 every 6 months. 
2. Flexible SIPs: These give you the convenience to change the SIP instalment depending on your needs and cash flow. If you face a cash crunch, you can lower your monthly SIP or invest more if you have a high cash flow. It is even easier to change the SIP before the instalment date if you invest through SIP online.  
3. Trigger SIPs: This option allows you to set an automatic trigger to redeem/switch from one mutual fund to another. Experienced investors can use trigger SIPs to switch funds if the market becomes volatile.
4. Perpetual SIPs: Investors can keep their SIPs ongoing indefinitely through perpetual SIPs. All they have to do is not specify the end date when starting an investment, and it will continue till they give specific instructions to the Asset Management Company (AMC) to stop it. 

Advantages of Investing in SIPs

• Low barrier to entry: You do not need a large sum of money to start investing via SIPs. With as little as Rs. 500 per month, investors can start their investment journey and increase the SIP when they get more income.
• Rupee cost averaging: If you invest a fixed amount periodically, you can buy more units when the market is low and fewer units when it is high. Over a longer investment period, it reduces your overall cost of investment. This benefit, called rupee cost averaging, is not present with lump sum investments.
• The power of compounding: Compounding refers to the process of earning returns from the principal investment and income generated from it. Like compound interest, investors get considerable returns from the returns already earned over a long period.
• No need to time the market: With lump-sum investment, investors need to time the market so that they do not face losses due to a market downturn. SIPs allow you to benefit from market volatility, eliminating the need to time the markets.
• Easy to invest: Investing in mutual funds via SIPs is quite easy. You can decide the amount to invest through SIP online at AMC’s website. With an auto-debit instruction, you do not even need to remember paying the monthly instalments.

Navi US Total Stock Market Fund of Funds allows investors to get exposure to the US equity market at low costs. You can invest in Navi’s mutual funds with a SIP of only Rs. 500 per month on platforms such as Kuvera, INDMoney, Paytm Money, Zerodha and Groww. Visit www.navimutualfund.com  to know more.

Also Read: Top 8 SIP Plans To Invest In India

How Can You Invest through SIP? A Step by step guide

Given are the steps to invest in a mutual fund via SIPs:

Step 1: Choose the right mutual fund on AMC’s website based on your financial goals and risk appetite.

Step 2: Keep all necessary documents at hand, including a digital copy of your photograph, PAN card, address proof and bank account details. 

Step 3: Next, you have to get your e-KYC done. You can do this through the website, online trading app or mobile app of any AMC, RTA website or CAMS KRA website.

Step 4: After completing the e-KYC, you will want to register/sign up on the website of your preferred AMC with a user ID and password.

Step 5: Next, choose the right mutual fund scheme and decide the SIP amount and scheme plan (regular, direct, growth or dividend payout). You can use the fund house’s SIP calculator to decide how much you want to invest.

Step 6: Select the frequency of your investment (weekly, monthly, quarterly, annually) and the date of first instalment. Then, you have to select the mode of payment- auto-debit through one-time mandate (OTM), net banking or NEFT/RTGS.

After you submit all these details, the AMC will send an acknowledgement through email and SMS. They will also allot the units of the first instalment as soon as the payment gets processed.

Final Word

A Systematic Investment Plan is a great tool for you to get started on your investment journey. Using it, you can reap considerable returns long-term with a small sum. It is easy to invest through SIP online and helps to inculcate the habit of regular savings. SIP investments also reduce investment costs and the risks of market volatility.

Frequently Asked Questions

 1. How can I stop a SIP investment?

You will need to inform the fund house that you want to stop the SIP. To do this online, log in to your investment account with the fund house and submit the ‘Stop SIP’ form. Otherwise, you can do this physically by going to the branch of the fund house and submitting a duly filled SIP cancellation form. 

2. Who needs to do the one-time KYC for mutual funds?

Any first-time investor for mutual funds needs to do the one-time KYC mandatorily. You can choose to undergo this KYC verification on the website of any fund house or RTA (Registrar and Transfer Agents). You will need to submit your PAN, address proof and photo to complete online KYC.  

 3. What is the SIP calculator for mutual funds?

The SIP calculator is an online tool that helps you estimate the returns you will get on your SIP investments. To calculate what returns you will get, enter the monthly investment, expected rate of returns and investment period. 

The 15x15x15 rule is an investment strategy for accumulating Rs. 1 crore through SIP investments. According to this, you need to invest Rs. 15,000 per month via SIPs for 15 years. If you invest this amount in a mutual fund offering at least 15% annualised returns, you will be able to become a crorepati. 

 5. Can I increase the amount of SIP for a mutual fund?

You can increase the SIP amount only in case of a top-up SIP with provisions of changing investment amount. This can be done from the SIP account on the fund house’s website. You can also opt for step-up SIPs when starting investment to automatically increase the SIP at regular intervals.

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Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.

This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.