Are you first time investors and are a bit confused? You are not alone. Numerous individuals have the desire to venture into investment and have no idea where to begin. What would you think, should I tell you there is an easy, time-tested method of increasing your wealth? It is referred to as a Systematic Investment Plan or SIP as it is abbreviated.
Consider a SIP as a repetitive deposit to mutual funds. You will invest a small amount of money (usually set in stone) on a regular basis instead of attempting to prophesy the market by putting in large sums of money. This is an excellent method through which a novice can venture into the investing world due to this kind of discipline. It assists in establishing a saving habit and investing your cash.
It is time to learn how to invest in SIP for Beginners when it is your first time and begin your path of financial freedom.
What is a SIP? Understanding the Basics
SIP Meaning and How It Works
A Systematic Investment Plan (SIP) is a system of an investment of a specified sum of money in mutual funds at specified time intervals- such as monthly or quarterly. It is not a product that involves investment, but means to invest.
One can see it in a nutshell in this way:
- You choose to save some money out of your income monthly.
- This is money that is automatically deposited on the mutual fund scheme that you have selected.
- You get, in turn, units of that fund. The price of the fund on that day is what determines the number of units you receive.
SIP vs. Mutual Fund: What’s the Difference?
Most novices confuse a SIP and mutual fund. Let's clear that up.
- The real investment product is a Mutual Fund. It is a collection of funds belonging to a large number of investors and which is professionally controlled and invested in stocks, bonds and other investments.
- The way you invest in that mutual fund is called a SIP. It is similar to having an investment subscription plan.
The investment in a mutual fund could be in two forms; lump sum (all at once) or in small periodic amounts using SIP. To most amateurs, it is more appropriate to start with a SIP and be less stressed.
Why Should You Start a SIP? The Big Benefits
It’s Perfect for Small, Regular Savings
It does not require one to have money in order to begin investing. The best thing about SIP is that you can start with a very low amount; sometimes as low as 100 or 500 per month. This renders it an ideal investment scheme to novices as well as those with salaries.
You Don’t Need to Time the Market
It may be difficult to judge of the most appropriate moment to invest, including professionals. SIP makes use of a clever idea of rupee cost averaging.
- With low prices, your units will be purchased at a fixed investment.
- With high prices, the same investment will purchase fewer units.
This will evenly balance out the expenses of your investments in the long run. This is because you do not need to be concerned with market ups and downs.
The Magic of Compounding
Compounding is a giant in finance. It implies that you will be getting returns not only on your initial investment but on the returns that your money had earned.
Think of it like a snowball. One snowball (your first investment) goes down a hill and gathers more snow (your returns). It continues growing larger and larger as it rolls, collecting the snow more rapidly. The more time you remain invested, the higher your wealth snowball becomes!
It Builds Financial Discipline
A SIP makes saving a routine with the ability to automate investments. It will also imbue a feeling of financial discipline which will assist you in achieving your long term financial goals without the necessity of thinking about it every month.
You may also read :- How to Invest in Real Estate: A Beginner-Friendly Guide
Your 7-Step Guide on How to Invest Money in SIP for Beginners
Ready to start? Use this easy, step-by-step investment guide using SIP.
Step 1: Figure Out Your Financial Goals
The first thing to do is to question yourself why you are investing? Are you saving to have a car, a house, education of your child or to retire? The awareness of short-term and long-term goals will assist you in determining the extent of investment and the duration of the investment.
Step 2: Know Your Risk Appetite
Risk appetite is simply a gimmick of the amount of risk you are willing to be exposed to. Do you feel comfortable when your investment value increases and decreases or does it bother you? Your risk profile is determined by your age, income and financial responsibilities.
Step 3: Complete Your KYC
KYC is an acronym that means know your customer. It is a single time process that regulators are supposed to undertake in order to confirm your identity. You will have to submit simple forms such as:
- Your PAN card
- Aadhaar card
- Evidence of where you live (such as a power bill or a bank statement)
This is now an almost completely online process that is fast.
Step 4: Choose the Right Mutual Fund
This is a very important step. There are thousands of funds, and you are going to choose one? Find investments that suit your financial objectives and risk tolerance. One of the ways to select a fund is through the use of an online mutual fund platform, which provides fund selection tools. It is always a good practice to diversify your investments to various types of funds (what we term as diversification) in order to reduce your risk.
Step 5: Use a SIP Calculator
Calculate the amount using a free online SIP calculator before settling on the amount. This is a tool that assists you to answer questions such as, "Suppose I save 5,000 per month, over 15 years, how much could it grow? It demonstrates the strength of compounding and assists you in doing better planning.
Step 6: Set Up Your SIP Online
When you have selected a fund and a platform, it is a simple matter to set up your SIP:
- Register into your preferred investing application or a webpage.
- In the mutual funds section, locate the fund that you have chosen.
- Choose the "SIP" option.
- You will enter the quantity that you would like to invest and the date of the month on which you would like the deduction to happen and the duration of the deduction.
- Give your bank account number and verify.
Step 7: Stay the Course and Monitor
The key to successful SIP investing is patience. Don't stop your SIP when the market goes down—that's when rupee cost averaging is working in your favor! Check your investments once or twice a year to make sure they are on track, but avoid making emotional decisions based on short-term news.
Common SIP Mistakes Beginners Should Avoid
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Stopping Your SIP When the Market Falls: This is the biggest mistake. When markets are down, your SIP is buying more units for the same price. Staying invested is crucial.
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Not Increasing Your SIP Amount: As your income grows, your savings should too. Try to increase your SIP amount by a small percentage every year to reach your goals faster.
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Expecting Overnight Riches: SIP is a marathon, not a sprint. It is a long-term wealth creation tool. Be patient and let compounding do its magic.
Final Thoughts on Your Investment Journey
Starting your first SIP is a powerful step toward taking control of your financial future. It is a simple, disciplined, and effective way for beginners to enter the market. Remember, every expert investor was once a beginner. The most important thing is to start.
Define your goal, choose a plan, and let your SIP journey begin. Your future self will thank you for it.
FAQs: Your Questions About SIP Investing Answered
1. How much money do I need to start a SIP?
You can start a SIP with a very small amount. Many mutual funds allow you to begin with just ₹100 to ₹500 per month. There is no upper limit.
2. Is my money safe in a SIP?
Your money is invested in market-linked instruments, so its value will fluctuate with market conditions. SIPs are subject to market risk. However, using the rupee cost averaging strategy helps manage this risk over the long term. It is important to invest through a registered mutual fund or a trusted bank.
3. Can I stop my SIP anytime?
Yes, you can usually stop or pause your SIP at any time. However, some tax-saving funds (ELSS) have a lock-in period of three years.
4. Do SIPs guarantee returns?
No, SIPs do not guarantee returns. The returns depend on how the mutual fund scheme you have invested in performs. Past performance is not a guarantee for future results.
5. What is the best time to start a SIP?
The best time to start a SIP was yesterday. The next best time is today! Starting early gives your investment more time to grow through the power of compounding.
