Mutual funds are the best way to build wealth and achieve financial goals. Mutual funds offer a diversified investment portfolio that helps you manage risk while earning potentially higher returns than traditional savings accounts or bonds. One of the most famous ways to invest in mutual funds is Systematic Investment Plan (SIP). This article will discuss How to Start Mutual Fund SIP and what you need to know before investing.
What is Mutual Fund SIP?
A Systematic Investment Plan (SIP) is a method of investing in mutual funds where you invest fixed money at regular intervals, usually monthly or quarterly. SIPs help investors create a disciplined approach to investing by spreading their investments over time rather than investing in a lump sum at once.
Advantages of investing through SIP
Disciplined approach: SIPs help investors develop a disciplined approach by investing a fixed amount regularly.
Rupee Cost Averaging: SIPs allow investors to buy more units when the market falls and fewer units when the market rises, resulting in a lower average cost per unit over time.
Power of Compounding: SIPs allow investors to benefit from compounding, which helps them achieve their financial goals faster.
How to Start Mutual Fund SIP?
These are the steps to Start Mutual Fund SIP.
Identify your investment objectives and risk appetite:
The first step to investing in mutual funds is identifying your investment objectives and risk appetite. You should know what you want to achieve with your investments and how much risk you will take to achieve those goals. Your investment goals, like building an emergency fund or retirement savings, may be short-term.
Research and shortlist mutual fund schemes:
Once you have identified your investment objectives and risk appetite, the next step is to research and shortlist mutual fund schemes that suit your investment objectives.
You can research mutual fund schemes by looking at their past performance, expense ratio, asset allocation, and investment strategy. You can also take the help of a financial advisor to help you choose the right mutual fund schemes for your investment goals.
Open a mutual fund account:
To invest in mutual funds, you must open an account with a registered AMC (Asset Management Company) or a broker. You can open a mutual fund account online or offline.
To open a mutual fund account online, visit the AMC or broker’s website and complete the online application form. To open a mutual fund account offline, visit an AMC or a broker’s office and complete a physical application form.
Select the frequency and investment amount:
After you open a mutual fund account, the next step is to choose the frequency and amount of investment. You can invest in mutual fund SIPs monthly, quarterly, or any other frequency that suits you.
You can also choose the amount you want to invest in mutual fund SIPs. It had recommended to regularly invest an amount you can afford without disrupting your monthly budget.
Monitor your investments and make necessary changes:
Once you start investing in mutual fund SIPs, monitoring your investments and making necessary changes per the market conditions is important. You should review your mutual fund portfolio regularly and make necessary changes in your investment strategy.
You should also track your investment performance and adjust your investments to achieve your financial goals.
Five things to remember about Start Mutual Fund SIP
Here are five things you should remember while doing SIPs Card payments and insurance premiums.
- Once you start SIP, don’t stop SIP midway. It takes away the benefit of long-term equity wealth compounding and compromises your goals.
- Monitor your fund wherever you are doing SIPs. You must stick to your SIP, but if the fund is not at the right level, look to switch funds.
- SIPs work best in the long term. Don’t try to evaluate SIPs in shorter periods, like six months or one year. It can lead you to the negative conclusions. Increase your SIP with the increase in your income to have more wealth in sync with your future income levels.
- Add each SIP to the target. It gives purpose to your goal. Write that this SIP is for your retirement, and this is for your daughter’s education. It makes things a lot easier.
- Ensure you can afford SIP continuously, so have an emergency fund before starting SIP as a backup plan. That is the starting point.
How to Stop Mutual Fund SIP?
There are two broad ways to stop SIP: offline and online. Details of each such mode had mentioned here.
Offline mode
Offline mode of cancellation of SIP is when the investor physically submits the necessary form to the concerned officer at the office of AMC or Registrar and Transfer Agents. The detailed procedure for the same had given below.
- The first step for investors is to inform AMC about the current SIP cancellation request.
- Investors should also inform the bank where they set SIP auto-debits.
- After initiating the process, investors must obtain an appointment form from the AMC or RTA of mutual funds.
- In this form, various details, such as investors, have to be provided
- Bank account of the investor linked to the scheme
- SIP Scheme Name
- Folio no
- PAN No
- SIP amount
- Date to stop SIP
- This form must submit at the AMC office or RTA office.
- The cancellation request for SIP takes 21 days to process and varies by the fund house.
- The investor has to submit a written request to the bank to cancel the SIP, known as the NACH mandate.
- The AMC cancelled the SIP after the SIP cancellation instruction was given to the bank, and no amount had been debited to the account for two months.
Online mode
Online mode of cancellation of AMC can do through any of the following modes.
By AMC:
- First, visit the AMC website and log into their account.
- In the next step, select the existing SIP to be cancelled and click ‘Cancel SIP.’
- It cancels the selected SIP within a given number of days (usually 21 working days).
- After this waiting period, SIP deductions will stop.
- An investment remains in the fund until a redemption or switch request is initiated.
Through Agent (For General Mutual Funds):
- Investors should contact the respective agent who has invested in the SIP.
- The next step is to fill out the required form for cancellation requests with all the required details of SIP.
- The agent forwarded this cancellation request to the concerned AMC.
Through Distributor (for General Mutual Funds):
- When SIP had invested through the mutual fund website of any distributor or agent.
- The next step is to select the SIP instruction to cancel.
- Investors need to click on ‘Cancel or Stop SIP’.
Frequently Asked Questions
As a result, the short answer to this question is no, you do not need a Demat trading account to invest in SIPs.
Their gains will add to your income as ‘income from other sources. ‘ Here, you will not incur income tax on SIP returns if they are below ₹1 lakh for a financial year.
Yes. Investors can cancel all their SIPs at once or select a few SIPs at their convenience.
No. There is no penalty for cancellation of SIP by the investor.