Have you ever checked off a to-do list, and noticed how there’s always that one item still yet to be checked? In the finance world, it’s often to “start investing”.
Every year, you aim for a bigger hike and better savings, but a step often overlooked is to start investing. Focused solely on increasing your savings, you miss out on investment opportunities to grow your savings faster.
Did you know a basic Systematic Investment Plan (SIP) can start with as little as ₹ 500? SIP is an investment option that enables you to invest small amounts regularly. It’s a simple step, that’ll help you finally tick off “start investing” on your finance checklist.
Let’s understand what SIPs are, and how they can benefit you. We’ll also bust some common misconceptions about it and give 5 simple tips to start SIP.
What is a SIP?
Even the tallest wall is built brick by brick. SIP investments also work on the same fundamentals. A SIP allows you to invest a fixed amount in a mutual fund.
The words mutual funds, compounding, fund schemes, debt funds, and investment plans often confuse an investment beginner. It’s also common that the popular disclaimer “Mutual Fund investments are subject to market risks” makes you question your SIP decision.
So let’s break it down into even simpler terms. SIP stands for Systematic Investment Plan.
While ‘systematic’ means being consistent about your investment, ‘plan’ keeps the consistency in check, for a fixed time.
The letter S in SIP, according to us could also stand for “simple”. Cause, starting a SIP is exactly that.
It’s the investment you make in a “systematic” manner to reap maximum returns.
It’s totally up to you, the investor, to decide how regularly you want to invest. Either once in 7 days or once in 365 days. It’s these factors that show why SIP investments are not risk-free but risk-friendly.
Every financial expert will tell you that any investment plan is not without risk, but they will strongly agree that an informed decision is a rupee well invested. Over a period of investing with discipline, you will be able to create wealth, from a sustainable mode of investment.
A popularly known fact is that the rate of interest on SIP investments is usually higher than the rate of interest that you would be getting on a savings account in your bank.
While the minimum balance amount for a savings account in a private bank is above ₹10,000, you can start investing in SIP for a minimum amount of ₹500. A SIP doesn’t require a lump sum amount but only a systematic approach. It’s highly likely you’ll benefit more from a small amount of systematic investment than saving a lump sum amount in a bank.
It’s alright to feel confused at the beginning. For someone who is starting off with SIP investments, all the numbers and terms can seem like unfamiliar territory. Even Warren Buffett, an investment mogul, got reaps from his investments after he turned 50 years old.
That doesn’t mean you have to wait till you’re 50, It means you ought to be patient to reap phenomenal results.
Here are the simple steps on how to start a SIP in India:
Keep the necessary documents ready
Make sure you have government-approved ID proof and address proof (Aadhaar card & PAN Card) in hand. Much like any formal/legal application, this too needs identity verification. You are also required to submit a Cancelled Cheque, which has your name printed on it.
Keep all the necessary documents ready to save time. It’s important to save both, your rupees and your time.
Get your KYC done
Check with the updated norms of ‘Know Your Customer’ (KYC) and ensure you comply with them. Once you have all the above-mentioned documents, KYC is an easy step. The Know Your Customer process recognizes and verifies you as a customer. In this, your bank account is verified, while you have to also add a nominee. A nominee makes fund transfer easier in your absence. Be patient in this step.
Register for a SIP
You need to register with an investment platform through a Financial Expert who is certified and follows
the SEBI guidelines. This marks the beginning of your investment journey.
Choose the right investment plan
This is an important step that’ll depend on your saving capacity, which determines the returns you seek. As a beginner, it’s advised to rely on someone experienced.
Choose a SIP amount & date
Once you have the SIP plan/scheme, choose the right amount that’s suitable for you. At Vittae, we believe that financial stability and freedom are unique to each individual. Opt for an amount that you’re comfortable with.
Next, select a date that works for you. You can choose multiple dates within a month too.
Submit the SIP form
Once all the above steps are finalized, submit the SIP form online/offline. This enables the investment platform to invest a certain amount regularly, on your behalf. This is the last step for you to begin your Systematic Investment Plan and start your SIP journey.
The mathematical magic of any investment is that the amount you invest might be less, but the returns you get grow exponentially.
The best feature of SIP is that the majority of them don’t charge a penalty. All you have to do is sign into your account and opt out of the Systematic Investment Plan. Financial services like Vittae ensure that you’re on the right track, and continue to stay on that path.
Five simple tips to start an SIP
The most crucial steps come not while investing through SIP but being consistent about it every month after it.
Wondering why we’re constantly reminding you to be consistent with your SIP investments?
We wish you the best and want you to invest in regular intervals. This way, every month you will be by default converting your ‘money earned’ to ‘money saved’, even before it becomes ‘money spent’.
This consistency brings your financial discipline and helps you get better returns in the future.
Another wonderful advantage of investing in SIP plans is that you do not have to worry about the market. With SIP, you can avoid the stress that comes with “timing the market”.
For example, when the stock market is low, you’ll be allotted say 30 units for ₹10,000. Similarly, when the stock market is high, you’ll get 20 units for the same amount.
The SIP benefit is that on average, your net returns will be well-balanced. A bonus is that this allows you to diversify your portfolio, by starting multiple SIPs.
5 Common Myths about SIPs
SIPs are meant only for Investment Beginners
As mentioned above, SIPs can be made even for a minimum amount of ₹500. It is a common misconception that SIPs are for beginners who want to start in a “small” and systematic way. The fact is, the amount of your monthly investment depends entirely on your saving capacity. So, irrespective if you start with a small or big amount, ensure to plan your investment wisely.
SIP amount & tenure cannot be altered
You, the customer have full control over how much money you want to invest, and for what time. If you are a full-time professional or a freelancer, your cash flow will be very different in both scenarios. Decide when and how much to invest in a SIP. Every rupee earned and saved is valuable, and you decide where it goes.
SIP is a sure shot way to fast returns
It’s a common mistake for investors to expect “guaranteed returns” on SIP as it’s the safest bet in mutual funds. The fact is, nobody can beat the market and the risks that come with it. However, if you stay invested for the long term, you do get the benefit of capital appreciation that in most cases, gives you net positive returns.
SIP should be chosen in a bullish market
When the market shows an upward trend, it’s known to be “bullish” in nature. Investment beginners don’t make any new investments assuming that they’ll be spending too much for too little.
As explained, in SIP, consistent investments over a longer tenure result in top performance. It is likely that when you plan your SIP, you don’t factor in the nature of the market. Ensure to still be ‘systematic’ in your investment plan.
SIP is a financial product
SIP is an investment facility. It enables the investor i.e. you, to make regular investments. The amount you opt for will be deducted from your bank account and invested in the mutual fund scheme/plan chosen by you. The compounding effect will be calculated on your amount alone.
In Summary
If you are looking to start your money story and aiming to achieve financial freedom, now is the time to begin.
Even with the market risks involved when you invest in SIPs regularly, we are positive your net returns will make you smile. Investment plans are not roller-coaster rides that are for the thrill of the moment, but like a sitcom with multiple seasons that you’ll enjoy over time.
With Vittae Financial Experts, you’ll get personalized financial guidance that’ll lead you to grow financially. SIP is a first step, that’ll help you to look from a long-term perspective. For your savings to turn into wealth, you need to be both patient and wise. From understanding your own risk appetite to investing in your first SIP we wish you financial growth and wellness.
In Warren Buffett’s words, “Someone’s sitting in the shade today because someone planted a tree a long time ago”. A sapling takes time to grow into a tree. Similarly, your investments will also grow, provided you start early and are patient. There’s no better time than now, to start planning for your financial freedom.