Planning to invest in SIP: Follow these 5 simple steps

Most people think they need to have a lot of money before they can start investing. These days, with as little as Rs 500 you can get your feet wet with mutual funds.

Investing in mutual funds allows you to take part in a larger pool of funds that will be managed by a professional fund manager. This presents a lot of advantages, the best of which is that you do not need to come up with a large sum to be able to invest in a variety of investment funds—say equities or bonds.

Mutual funds are also suitable for those who may not have the time and capacity to manage their own portfolio. Unlike directly investing in stocks or bonds which require you to devote time into managing your holdings, investing in a mutual fund somewhat frees you from these responsibilities.

If you think mutual funds are for you, here’s a step-by-step process to starting an SIP today:

Step 1: Intermediaries v/s Asset Management Companies (AMC)

First decide if you want to invest through intermediaries (banks, financial advisor) or directly via an AMC. Intermediaries are certified financial planners who will help you to select right funds according to your need, goal and time frame with proper asset allocation. Besides this, they will help with filling and submitting the forms and documents; hence they include a nominal fee.

If you have the expertise and knowledge in selecting funds and the bandwidth to devote sufficient time and attention to the various aspects of investment management, you can consider investing in direct plans with the AMCs.

Step 2: Complete the KYC Procedure (Know your customer)

You need to be KYC compliant to begin investment in mutual fund. KYC is a one-time exercise that must be done if you want to invest. It can be done electronically through eKYCor by visiting the nearest KYC center in your city. Most fund houses have started providing this facility through their website. For KYC procedure, following documents are required - Identity proof, address proof and a passport size photograph.

Step 3: Find the right fund for SIP

As per your goal, time horizon, risk appetite, chose the right fund for SIP.

Equity (High Return, High Risk): Invest primarily in shares of stock Debt (Low Return, Low Risk): Invest in debt instruments of governments or corporations Balanced (Middle Ground): Invest both in shares of stock and debt instruments

Step 4: Decide the SIP amount

You need to calculate and decide how much you need to invest through SIPs to meet your various financial goals after considering expenses. It is advisable to give realistic time to your investments to achieve your goals with proper asset allocation and adjust the goal amount for inflation.

Step 5: Decide date, payment details and submit form

Once you choose the fund to begin SIP, decide whether you want a weekly, monthly or a quarterly investment plan. Choose a date on which the SIP amount will be directly debited from your bank account. One can also opt to make the make the payment through manual transfer or postdated cheques. After filing in all the details, submit the form. Thereafter, once the formalities are complete and SIP is registered, the AMC will send you the statements periodically.

Conclusion: An SIP can be the first of many investment instruments that can help you get started with planning your finances. These simple steps could eventually help you build a comfortable future for yourself and your family.

Source: L&T Mutual Fund