Systematic Investment Plan, or simply SIP, is an instrument offered by mutual fund houses to promote disciplined investment among the investors. In SIP, investors decide to invest a fixed amount every month directed towards the selected mutual fund scheme. Anyone can start a SIP with investment as low as Rs.500. At any given moment, investors can either increase or decrease the investment value at their own convenience. Besides this, investors can also choose the investment intervals on weekly, monthly, quarterly, semi-annually, or annually basis. Under the scheme, investors follow a disciplined investment plan to earn good returns in the long-term.
So, if you have decided to park your funds in a systematic investment plan, but have no idea where to start from, here’s what you need to know about starting a SIP.
Set your financial goals – First of all, you need to set your financial goals in order to gain a clear vision about your investment plan. For instance, if you’re planning to buy a home in the next 5 years, then what will be your budget and how much would you be able to pay as a down payment? Therefore, while planning to invest in a SIP scheme, remember to keep your future goals in mind. This will give you a clear understanding of how much returns you can expect in a certain period and how much actually you need to invest and at what intervals.
Understand the market – When you decide to step into the investment world, always remember to study and understand the market scenario. It may be noted that mutual fund investments are subject to market risk. And, as it is hard to predict the market, it is significant to gain enough understanding to be prepared well in advance. Understand when the time is right to start the SIP and when it is right to withdraw the funds.
Calculate your investment – Even though it is exciting to become financially independent, don’t let your excitement overrule the investment benefits. Remember, if you want to earn good returns upon maturity, make sure to thoroughly calculate your investment plan such as how much you can afford to invest every month and till what period of time? What will be the investment interval and at what time you expect to withdraw the SIP? A well calculated plan reaps more good returns than just a random investment.
Make a right choice – As you have gained enough knowledge and understanding of your investment plan, now it’s time to pick a right SIP scheme to suit your financial goals. You can also take help from your financial advisor who can guide you through picking the best SIP schemes. Before finally choosing the one, make sure to get a detailed portfolio of the scheme to gain an understanding about its market performance, exposure to market risks, and maturity returns.