Systematic Investment Plan: A Detailed Guide

Wealth creation needs discipline, and it gets created over a period, through systematic and meticulous investments. You must start saving from the time you earn and put away the funds in a diverse range of financial instruments so that you can accumulate a massive corpus and fulfil the financial goals. Some of the best investments for long-term wealth creation include PPF, recurring deposits, and mutual funds. So, which is the ideal option? Ideally, SIP investment, which works like recurring deposits, instils the financial discipline of keeping a fixed sum aside monthly.
Before getting into the nitty-gritty of the investment, it is essential to understand SIP. It is an option given to you by the fund house, which allows you to invest in mutual funds by paying a fixed amount over a period. There are two ways to go about with the investment – lump sum and SIP. The SIP option makes it possible to select the mutual fund and invest the amount in instalments, based on the duration you are comfortable with, be it weekly, monthly, quarterly, or half-yearly. The number of units allotted over the duration depends on the unit price of the fund.
What is the process to invest in SIPs?
Define an investment objective
Your strategy depends on your financial goals. Your fund manager helps you build the investment portfolio based on your short or long-term goals.
Determine the risk appetite
You must access your risk appetite. If you are a conservative investor, you must invest in low-risk securities. If it is the other way round, i.e. a high-risk investor, consider investments accordingly. You may reap higher returns.
Select funds to invest
You can choose from an array of SIP mutual fund schemes to invest in. The thumb rule for fund selection is considering the fund’s previous performance. Before you purchase the fund of your choice, you should fulfil the one-time KYC compliance with assistance from an investment advisor.
Choose the date and tenure
The next step for systematic investment plan is opting for the date when the amount can get deducted. The amount gets auto debited. So, make sure you have sufficient funds in your account on the chosen date. You should also select the tenure of investment based on when you need the sum you invested. Some funds like ELSS, through which you gain tax benefits, come with a fixed term of three years.
SIP investments are best for both new and professional investors. New ones can benefit from it because it inculcates a sense of financial discipline from the beginning, while they need not worry about lump sum investments. Also, if you are a new investor, it is ideal to opt for the services of a financial advisor and acquaint yourself with how the market works.