How To Invest In Systematic Investment Plan?

As the name suggests, the systematic investment plan (SIP) is a gradual and disciplined method of investing in a mutual fund. For example, you decide that you can afford to save Rs.5,000 per month. You set up a SIP for Rs.5,000 on a particular date (say 10th of every month) and on that day the amount gets debited and the mutual fund units will get credited based on the NAV applicable for that day. It is extremely popular as is evident from the 4.78 crore mutual fund SIP folios that are today in existence in India.

Selecting the fund, Date and SIP amount

This is the first step. You start by zeroing in on the fund you want to do a SIP on. The best way to start is by doing a financial plan. This will tell you your goals. If it is a long term goal, you can do equity fund SIPs. Select the fund based on past performance and consistency of performance. Once that is done, the next step is the date. Here you select the date when you know there will be credit in your account. If your salary is credited on the fifth of each month, then ideally keep 10th as the SIP date. This will repeat each month. Finally, your SIP amount will depend on your goal and your affordability. Don’t start a very big SIP which you may struggle to sustain. Instead, start with a smaller SIP and then step it up as you go along.

Let us understand why SIPs make a lot of sense. If you are young and have a good 25 to 30 years for your goals, the best way is an equity fund SIP. You don’t worry about timing the market and the rupee cost averaging works in your favour. This also does not pinch your pocket as the monthly allocations are quite small. However, over the long run, these SIPs really work to your benefit.

Can you outline the steps I must take to invest in SIPS?

There are some basic steps that you need to follow to start a mutual fund SIP and this will depend on whether you are investing in SIPs for the first time or you are continuing an existing relationship.

Step 1: Visit the Official Website of the Selected Fund House

First and foremost, you must visit the official website of the fund house whose mutual fund scheme you are interested in. You can also visit the office of the fund and do the SIP physically but online is a lot more convenient. Once on the website, look for the “New User Registration” option. This will redirect you to a new page where you must provide your basic details, along with PAN and bank details.

Step 2: E-KYC and new Account Creation

If you are investing in mutual funds for the first time, you must complete E-KYC (Electronic Know Your Customer). This is an online Aadhar based identification verification process, which can be completed in less than 10 minutes. It is a simple process that should not take more than a few minutes. However, in reality the verification takes about 2-3 days and the fund may also insist on in-person verification or verification via video.

Once the E-KYC is done and your PAN shows as E-KYC verified, the fund house will create a new user account for you. You will receive your username for logging into their online portal through email. You can then set your password for the account. Remember, once you create an account / folio with an AMC, you can use the folio for all your future investments in the same fund or different funds. However, if you go to another AMC, you must create another account or folio. However, E-KYC is just a one-time affair.

Step 3: Read up the fine print of the SIP investment

Mutual fund investing sounds quite simple, but as always, the devil lies in the detail. Go through the fine print before signing on the dotted line. For example, look for the cost structures, compare regular with direct plans, check the minimum SIP amounts, verify the exit load costs, check how NAV will be applied etc. Also read up on the objects of the fund and check out the performance of the fund manager as well as the portfolio of that fund in the fact sheet. Equipped with this information, you are good to go.

Step 4: Monthly payment set-up: PDCs versus NACH

Once the account is created and you have understood the terms and conditions, you can set up the SIP structure online like the SIP amount, monthly debit date SIP duration etc. Now you need to decide how you are going to make the monthly SIP payment. You can either give Post-Dated Cheques (PDCs) or fill the NACH for auto-debit.

PDCs can be quite cumbersome since a large number of cheques have to be signed and handed over to the nearest branch of the fund or its registrar. A more efficient way is to opt for the NACH mandate form.

NACH actually replaced the Electronic Clearing System or ECS which was quite cumbersome and took time. NACH can be authenticated online and makes a lot of sense if you are opting for an online SIP. NACH mandate has been in vogue since e2016. NACH stands for the National Automated Clearing House, wherein the fund house can automatically debit the SIP amount from your bank account on the selected date. Units of the scheme will be allocated to you accordingly.

The NACH form can be downloaded online, which you can fill up and that works as a standing instruction for auto-debit to your bank. You will then have to take a print out and fill out the form before posting it to the fund house or uploading its scanned copy online.

Step 5: Getting started with your first SIP

This is the last step and can be quite exciting as it entails your step into the esoteric world of mutual fund investments. Remember that the NACH registration can take 10-15 working days. Once you submit the NACH form with your signature and other details, your fund house will send the form to your bank. The bank will then forward it to the NPCI (National Payment Corporation of India) for verification. So, your actual SIP can only start 1 month after the NACH form is submitted.

There are two things you need to ensure. Ensure that there are clear funds in your bank account at least 2 days before the SIP date. Also, in case of any merger the bank mandates may change so keep the fund informed in advance.

Five things to remember about SIP investing

Here are 5 things you must remember when doing SIPs. card payments, and insurance premiums.

• Once you start a SIP, never stop a SIP in between. It takes away the advantage of long term compounding of equity wealth and also compromises on your goals.

• Monitor your fund where you are doing SIPs. You must be committed to your SIP but if the fund is not up to the mark, look to change the fund.

• SIPs work best over the long term. Don’t try to evaluate SIPs over short periods of time like 6 months or 1 year. It will lead you to wrong conclusions.

• Increase your SIP with a rise in your income so that you end up with more wealth in sync with your income levels in the future.

• Peg every SIP to a goal. That will give a sense of purpose to your goal. Write down that this SIP is for your retirement, this is for your daughter’s education etc. It makes things a lot simpler.