Online SIP investment - A Complete Guide

SIP or Systematic Investment Plan is one of the modes of investing in mutual funds. It allows you to invest a fixed amount of money in mutual funds monthly or quarterly. It can be the best alternative for people who have a typical job but want to keep a portion of their salary towards investment. Let’s understand everything we need to know about online SIP investment.

You can open a SIP online by just following a few simple steps:

Open a demat account

You can't invest in the stock market until you have a Demat account. Therefore it becomes very important for anyone who wants to buy a SIP online to open a demat account first. If you already have it you can proceed towards the next step. Also if you want to open an account you can get in touch with a stock dealer and get it done within a few minutes. Several banks also offer options to open demat accounts and offer support and services for the same.




Selection of mutual Fund

The next step is to choose a mutual fund in which you want to invest your money in. The best way to do this is to look at the old figures of that particular mutual fund. Although it may not be a correct indication of its future, doing this will help you in making better decisions once you get an idea of how the fund has performed in the past.




Invest in the mutual fund

Once the necessary details have been provided, you can invest in the desired mutual fund and set up SIPs for the same so a part of your salary or earning is automatically invested in the fund.

Once all these steps are completed you are now eligible to start a SIP online. Also, make sure to provide the correct bank details from which the money will be debited for your SIP. You also need to make sure that the bank account has funds at all times.

After enlisting yourself in a certain mutual fund scheme for a particular amount that amount will be taken out from your bank account every month. Moreover, it's upon you to choose the date on which you want the deduction to take place. Plus the frequency of SIP can be selected as well. But the most commonly used frequency is monthly.

Net Asset Value (NAV) determines how the value of your mutual fund investment will rise. Just like the stock has a price similarly a mutual fund that we buy has an equivalent unit which is referred to as Net Asset value (NAV). As this Net Asset Value rises your mutual fund investment also rises. Mutual funds usually give you a return of 11-14%. The best thing about SIP is that since you are investing every month in a disciplined manner then you don't have to keep thinking about whether the market is up or down. For laymen, SIP is beneficial as it normalises the losses in the long run so you won’t have to study the market closely to decide if you want to invest when the market goes up or down.

Now that you are familiar with the basic idea of SIP, let’s discuss the two ways in which you can start SIP, Direct Plan and Regular Plan

Any mutual fund that you want to invest in will offer two plans through which you can invest in the fund, regular and direct plan. In case you have sufficient knowledge and want to invest in the fund on your own without any distributor, then you should opt for the direct plan. It allows you to save on the expense ratio (defined below) and offers greater returns as opposed to the regular plan in the long run.

You can also invest through a distributor via the regular plan. In this, you can invest through a middleman like a distributor or a broker who is paid by the AMC (charged to the plan) and helps you by facilitating the transaction.

You can decide which plan to opt for based on your knowledge and another important factor, expense ratio:

The expense ratio is the percentage that will be deducted from the total amount. It will not be invested, which means that if your expense ratio is 1% and you have given Rs.100 to the mutual fund the Rs.99 would go towards investment and the mutual fund will keep 1% which is Rs 1 for its own expense.

Since managing a mutual fund scheme involves various costs like sales, distribution and fund management expenses, all of it is covered under the expense ratio. These expenses are under limits as they are regulated by SEBI.

To determine a certain amount that you want to invest in a SIP you need to figure out your financial goals. Moreover, several other factors like risk, affordability, how long you want to invest for etc need to be considered too. Also, keep in mind that an investment amount that is ideal for your friend may not be the same for you as well.

The ultimate goal of any SIP investment is to make sure that your portfolio conveys the desired risk. Moreover, you should make sure that the mutual funds you are deciding to invest in fulfil the following criteria:

• The mutual fund has been existing for 5 years.
• The SIP investment is in confluence with your bank.
• Try to prefer a decent mutual fund.
• The total asset size of the mutual fund should be significant.

While SIP does not eliminate the risk involved with investing, it surely reduces it to a great extent and helps grow your money. For example, if you are getting a return of 11% in 8 years it means that your money is becoming two and a half times in just 8 years. Once you are comfortable with SIP, it would have become a normal SIP then it is a great time for you if you have the knowledge to consider other timed instruments.SIPs are a great way for you to continue with very little risk and continue to enjoy a healthy return!