SIPs, or systematic investment plans, have become a rage among investors willing to invest in mutual funds. Thanks to rising financial literacy and campaigns like ‘Mutual Funds Sahi Hain,’ SIP investments have gathered significant traction.
According to data from AMFI, Indian mutual funds currently have about 9.61 SIP accounts through which investors invest in various mutual fund schemes. If you are wondering what SIP investments are and why you should start one from today, read on.
What is SIP in Mutual Funds?
SIP in mutual funds are a mode of investment in mutual funds through which you can invest any amount at periodic intervals. You can start mutual fund SIPs from as little as ₹ 500 or ₹ 1000 either weekly, fortnightly, or monthly.
When you invest in SIPs, the money gets deducted from your bank account and goes into your chosen fund. Regular investments through SIPs imbibe a disciplined savings habit and build a corpus for various life goals.
Using the best trading app allows users to manage SIP investments seamlessly, providing easy access to regular investment options in mutual funds for long-term wealth creation.
SIP Investment: How to Start?
Let us understand how you can start a mutual fund SIP. Doing so is simple and straightforward. Once you have chosen a fund for SIPs which matches your goal and risk tolerance, all you need to do is:
- Complete KYC
If you are a first-time investor, you need to complete your KYC. It is mandatory under the Money Laundering Act, 2002. You can complete your KYC online or offline by providing basic documents, including proof of your address and identity, along with your PAN card. Once you are KYC compliant, you can seamlessly invest in mutual funds via SIPs.
- Fill out the SIP Form
Next, fill out the SIP form with your details, including name, mobile number, email ID, SIP amount, nominee details, and SIP frequency, among others. Verify the details before submitting.
- Link Your Bank Account
To set up SIP investments online, you need to link your bank account, from which the money will be deducted. If you are doing it offline, you need to give a cheque mentioning the amount and the fund in which you wish to do SIP to the fund house or the intermediary, like banks.
Once everything is in order, your SIP investment is all set to go. As per your given mandate, the money is debited from your bank account and gets invested in the fund. Once you place the request for redemption, the money gets credited into this account.
Demat account opening online is a convenient way to start SIP investments, allowing investors to easily manage their mutual fund contributions.
Why Should People Do SIP and the Reasons to Start Today?
If you are yet to start mutual fund SIPs, there’s no better time to start them right away. Starting SIPs from today brings multiple benefits to the table. These include:
- Disciplined Investing
Wealth creation is an art that warrants discipline. Just like Rome was not built in a day, building a corpus for life goals requires discipline. SIPs bring discipline into investments. Irrespective of what happens in the market, your money gets invested. This investing discipline can go a long way in ensuring financial freedom.
- Benefit From the Power of Compounding
It will not be an understatement to say that compounding is an investor’s best friend. It has a multiplier effect on wealth creation in the long run. Mutual fund SIPs done today and held for a long period can help you benefit from compounding, where interests generated are reinvested. The table shows the potential effect of compounding on your SIP investments:
| Monthly SIP Amount (in ₹) | SIP Tenure | Final Corpus ((in ₹) | Annualised Returns |
| 1000 | 10 Years | 2.05 lakhs | 10% |
| 20 Years | 7.59 lakhs | ||
| 30 Years | 22.60 lakhs |
The numbers are for illustrative purposes only
As you can see, higher the tenure, greater is the final corpus.
- Allows You to Start Small
You do not need a large investible surplus to start your SIP investments. As said, you can start with even ₹ 500 or ₹ 1000 per month. This makes SIPs accessible to all. The small investment amount alleviates the burden that comes from financial instruments that require big-ticket investments. As your income increases, you can increase the SIP amount gradually.
- Helps Ride Market Volatility
Equity markets are inherently volatile. Several factors contribute to market volatility. SIP investments done today can help you ride volatility with ease. Through rupee cost averaging, they average the price of buying with time. When markets are volatile, SIPs help you buy more units at the same price and vice-versa.
It also eliminates the need to time the market. Even the most seasoned investor can not predict the right time to invest. SIPs done today can help you remain invested across market cycles and benefit in the long run.
- Avoid Procrastination
Most people want to save and invest but keep delaying for one reason or another. Procrastination results in a precious loss of time. Mutual fund SIPs can help you avoid procrastination. Once you set your SIPs, the money gets invested automatically. It works in auto-pilot mode and is a kind of forced savings.
You do not need to worry and only make sure your account has enough funds on the SIP date. You will be surprised how a small investment can turn big in no time.
- Can Remain Invested As Long as You Want
There is no minimum time period for SIPs. You can remain invested as long as you want to until you have accomplished your goal. You can tailor your investment duration as per your goal. For short-term goals like going on vacation or building an emergency corpus, you can invest in 1-year SIP plans, primarily liquid funds or ultra-short-term funds.
On the other hand, for long-term goals like children’s education and retirement, you can stay invested for the long-term, 10 years and even more.
Summing it Up
As evident, starting SIP investments today offers multiple benefits. From compounding to disciplined investment and savings, they can go a long way in ensuring you have the required funds to meet various life goals.
The HDFC SIP investment app, HDFC SKY allows you to start SIP investments in mutual funds immediately. Sign up today and start your SIP journey. Choose from a range of mutual funds across categories that are in tune with your goals and risk tolerance.