Do you have many financial goals and you don’t know where to begin? Whether you have just started working or have a few years of work experience, proper planning can help you to reach your goals.
When you want to achieve anything, the most important quality or deciding factor is discipline. To achieve your financial goals too, you will need disciplined investing. Automating your investment is one of the easiest ways to be disciplined in your investing. Systematic Investment Plan (SIP) is the best and easiest ways to achieve all your financial goals.
What is Systematic Investment Plan (SIP)?
Systematic Investment Plan (SIP) is a way to invest in mutual funds. In SIP, a certain amount of money is invested every month to the mutual fund of your choice. SIPs come with several benefits. One of the benefits of SIP is that it is easy on the pocket. That means that you can start a SIP with Rs.500 per month. In this case, Rs.500 will be auto-debited from your savings account to your mutual fund every month.
You can also increase the SIP amount steadily. A 10% increase in the SIP amount per year will help you to reach your goals faster. For e.g., if you have Rs.500 SIP for 10 years and considering an average interest rate of 12%, you will end up with slightly more than a lakh. But, if you increase the amount by 10% every year, your corpus will grow to more than Rs.16 lakh.
Rupee cost averaging is another advantage of SIP. In rupee cost averaging, your costs are averaged out. It is because, in SIP, you are allotted the mutual fund units based on your SIP amount. So, when the markets are down, you will be allotted more units of the fund and fewer units when the market is high.
For e.g., let us assume that you have a running monthly SIP of Rs.5,000. The current price of a mutual fund unit is Rs. 50. The units allotted will be 100 (5000/50). Now, in the next month, the market falls and the unit price becomes Rs.45. In this scenario, you will be allotted 111 units, which is higher than the previous month. So, when the unit price rises again, the increase will be effective on all the accumulated units.
SIP investment helps to build discipline as you are investing a certain amount of money every month. You will be investing the amount every month irrespective of the market conditions and short term volatility.
How to start investing through SIP?
The first step before setting up your SIP would be to prioritise your goals. Because most of us have several goals and achieving all of the goals may be next to impossible.
Next, determine the cost of the goal. You can take the current cost of the goal and add a moderate rate of inflation. Online SIP calculators will help you to determine the target corpus and the required SIP amount to fulfil the goals.
Second, segregate these goals according to your investment horizons such as short-term goals (3 years or less), medium-term goals (3 to 5 years) and long-term goals (5 years or more).
If your investment horizon is less than 3 years, you can invest in a liquid or short term debt fund. For. e.g., you want to take a vacation in the next 6 months, a liquid fund would be a good investment option. Equity funds will help you to achieve your long term financial goals such as retirement.
The third step is selecting the fund. You can take the help of a financial advisor to help you select the right fund for you. You can type financial advisor in ‘your location’ on Google and you will easily get a list of advisors. Or else, you can ask your friends or colleagues who have already invested in a mutual fund.
If you are not comfortable with a financial advisor, you can look at various online websites like Scripbox, Kuvera and ETMoney. These websites are a good option for first-time investors as it shortlists the best funds under the various categories.
How to set up an SIP?
Many online investment portals allow you to set up an SIP. However, before investing in mutual funds, an investor needs to KYC compliant. It is a one time process. If you have an advisor, he or she will guide through the process.
The KYC process in apps like Paytm Money is completely online. All you need to do is follow the steps. The other way to do it is by downloading the KYC document through the website of a fund house, AMFI, CAMS and Karvy etc. You will need your PAN card, address proof and a cancelled cheque. Submit a copy of these documents and take the original for verification purpose to any fund house or a CAMS office. After the verification process is complete, you can invest in mutual funds and set up an SIP.
So, what are you waiting for? Set up an SIP and take the first step towards your financial goals.