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a comprehensive guide on how to get started with a SIP?

a comprehensive guide on how to get started with a SIP?

July 8, 2022
5 min read
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a comprehensive guide on how to get started with a SIP?
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the excellent returns that systematic investment plans (SIPs) have given in the last few years have made it one of the best investment options in India. the awareness campaigns by many asset management companies also helped in popularizing the concept of SIP and mutual funds. the return potential of mutual fund SIPs is much higher than traditional investment tools such as fixed deposits, recurring deposits, etc. SIPs are also considered a safer investment choice compared to investing directly in the highly volatile equity market. SIP is a great tool for you to invest in equity mutual fund schemes and generate wealth over a long period to achieve your financial goals. however, there are many investors who are unaware, confused, or afraid of SIP investments. here's a comprehensive guide that will help you get started with your SIP plan: 

let's first understand what is a SIP, what are its benefits, and why and how much should you invest through SIP:

what is SIP?

a systematic investment plan (SIP) is an investment tool that helps you regularly invest a fixed amount in the funds of your choice. The most common example of a SIP plan is a mutual fund scheme.

why should you invest through SIP? 

investing through a SIP plan imparts financial discipline to your life. it helps you invest regularly without worrying about market volatility, index ups-and-down, etc. when you invest through SIP, you don't have to worry about market conditions and think if it's the right time to put your money into the market. even market analysts find it difficult to predict the mood of the market, hence, most financial experts suggest investing a fixed amount on a monthly basis rather than making a lump sum investment. when you invest through SIP, your money is automatically invested regularly in a scheme without any effort on your part.

what are the other benefits of investing through SIP?

SIP is a great tool for averaging your investment cost and maximizing the returns. when you invest regularly through a SIP for a long period irrespective of the market ups and downs, you buy more units when the market is down and fewer units when the market is up. this helps in averaging out the investment cost of your mutual fund units. another major benefit of SIP investment is the power of compounding, some even call it the eighth wonder of the world. when you invest through SIP over a long period, you earn returns on the returns earned by your SIP, hence your invested money starts compounding. it helps you build a large corpus to achieve your long-term financial goals. you can start SIP with regular small investments and earn excellent returns in the long run.

how much money do you need to start a SIP?

starting a SIP is very simple. you can create your first SIP investment in mutual funds with a minimum of ₹500.

now that you know about SIPs and what are its benefits, let's find out how to start investing through a SIP

step 1: set your goal

you can't achieve success without a goal. hence, the first step is to find your goal and decide how much you need to invest. you might want to start a SIP for a vacation, buying a car, buying a property, child's education, marriage, retirement, etc. based on your financial goal, you also need to select the right tenure for your investment. for example, you can generate over ₹1.36 crore in 25 years with a regular SIP investment of ₹5,000 per month, if we assume the expected annual rate of return at 14%. 

step 2: set the SIP date

the success of SIP depends on discipline and regular investment. you should set the SIP date closer to your salary date so that your bank account is funded. to make sure you never miss your monthly SIP debit, put aside one month of SIP amount as a reserve in your account.

step 3: choose the SIP fund

you should choose the mutual fund SIP based on your financial goals. if you want to play safe, you can go for a conservative or balanced mutual fund and if you want to earn higher returns in a short span of time you can go for high-risk, high-gain mixed, or aggressive mutual fund options. it is also very important to look at the past performance of the funds you have selected. 

step 4: increase your SIP as your income increase

to maximize your wealth, you should keep adding new SIPs as and when your income increases. it will increase your savings with your income levels.

step 5: monitor your SIPs continuously 

once you have invested in SIP, you need to continuously and consistently monitor the performance of each fund you invested in. you can change or modify your SIP investment plans from time to time if required. make sure your investments are always aligned with your financial goals. 

you can use the CRED SIP calculator to compare and choose the right SIP investment plan to achieve your financial goals. 

use the CRED SIP calculator