Here’s a Complete Guide to Starting a SIP for Your Future

Congratulations on taking the first step towards a secure financial future. Your decision to start an SIP online can help you build wealth and fortune in the asset management company, long run provided you continue contributing to it in a disciplined manner. When you start a SIP or a Systematic Investment Plan, you get an option to invest on a monthly or quarterly basis in a mutual fund of your choice. Persistent SIP investment in a well-performing mutual fund will not only save your capital from the fluctuations of the stock markets but also ensure that your capital appreciates strongly over the course of time. For a working professional, who has no time or mental bandwidth to repeatedly jiggle his portfolio to match the rapidly changing business environments, a SIP is a great tool that provides him convenience and ease of investing without burdening him too much with the technical know-how.

What should you know before you start a SIP online?

Why do you want to start a SIP?

It is very important to clearly understand the motivations behind starting a SIP. Your goals should be crystal-clear to you. Different people start SIPs for different goals. Some undertake a SIP to plan for retirement, some to save money for their children’s education or for an overseas trip. A clearly set goal helps you stick with the investment and stops you from being swayed by short-term distractions and desires which can eat away into your savings.

Do you wish to invest for the short-term or the long-term?

This is a critical decision that will determine the type of mutual fund you wish to invest in. The tenure of SIPs that are sold by banks, financial organisations, and mutual fund companies varies considerably. Knowing the time frame for which you wish to remain invested will eliminate funds that do not align with your time frame and goals.

How much should you invest?

Before starting out with a SIP investment, it is important to be clear about the amount you can set aside for monthly or quarterly investment in the SIP. To figure out how much you can spare to invest in the SIP, calculate the savings in hand you are left with at the end of the month, after accounting for your household expenses, fixed expenses, and a rough estimate of variable expenses you might come across. Also, consider the total amount of EMI payments. It is important to calculate these expenses to arrive at the figure you can spare for SIP. Subsequently, you will have to stop or pause the SIP in case you cannot pay the whole or part of that amount. Mutual fund houses do not permit investors to reduce their monthly SIP contributions. Many mutual funds allow investors to top up i.e add to the existing contributions but none allow you to reduce the contributions.

Getting your KYC done

If you are a new investor, you will be asked to get your KYC or know your customer compliance norms done via a SEBI-registered intermediary. The intermediary can include a mutual fund house or online distributors or other digital platforms. SEBI has instituted this protocol to prevent large-scale frauds, and it helps in ascertaining the identity of the investor. You can get an offline KYC done as well. A financial advisor or a mutual fund agent can help you with the said procedure. You can also get an online KYC done. The online KYC verification is done in three ways

  • Completing the whole process online
  • By the OTP method on phone
  • By using the biometric system

In the first case, you can visit the website of any mutual fund house website or to the website of a KRA i.e a KYC registration agency, and submit the personal details demanded on the website. Along with that you will also have to provide scanned copies of dccuments asked for, complete an in-person verification via a video call and digitally sign the documents. In the second case, you can get your PAN or Aadhar KYC done through a SEBI-registered distributor or advisor. You will be sent an OTP on your registered mobile number and after entering it your KYC norms will be fulfilled. In the third case of a biometric option, the investor can comply with the KYC norms on a whitelisted device being operated by an intermediary.

Should you start a SIP when you are paying home loan EMIs?

Most financial advisors do not like debt and advise wrapping it up as soon as possible. Carrying on a home loan along with a SIP can create a complicated situation in case of the death of the investor which will create problems for his family. However, a few experts suggest continuing with the home loan if the mutual fund helps you generate higher post-tax return compared to your home loan’s interest rate. For instance, current home loan rates are at 7-8% whereas good mutual funds create returns anywhere around 10%. The returns in this case are better than the home loan interest rates.

Where to start investing?

There are several platforms where new investors can start investing. They are

  • Mutual fund houses: One can visit the website or the office of an asset management company, get their KYC done and start SIP online. Some fund companies also offer apps to their customers which provides the extra convenience of investing from the comfort of your home. Investing through mutual fund companies directly also saves you commission that would have otherwise gone to the agent.
  • Fintech investment platforms: As digital penetration keeps expanding in India, a number of new-age fintech platforms and apps have come up offering investors a quick and easy way to get their KYC done and start their investing journey.
  • Demat account: In case, you invest in the stock market or trade derivatives, you can also use your demat account to kickstart your investments in mutual funds. Note that you will be required to pay annual charges on the usage of demat accounts.
  • Register and transfer agents: CAMS and Karvy are popular RTAs that can be used to start your SIPs. The advantage of investing through them is you can pick and choose funds across many different asset management companies as compared to going to one mutual fund house and investing in its scheme.
  • MF utilities: You can also invest by visiting MF Utilities is a service platform backed by major players in the mutual fund industry. The platform is run to encourage larger participation in mutual funds