Benefits such as rupee cost averaging and financial discipline without worrying about timing the market has made SIP (Systematic Investment Plan) route of investment in mutual funds (MFs) extremely popular among investors over the years. As per the AMFI data, mutual fund SIP accounts as of February 2023 stand at about 6.28 crore, while monthly SIP inflow has increased from nearly ₹4,000 crore to nearly ₹13,686 crore during FY2017-23.

Let’s assume you are also in the bandwagon and have decided to invest in a particular MF through the SIP route. The decision-making process doesn’t end there, as you need to make multiple decisions such as those relating to choosing the route, amount and date, among others. Here, we attempt to help you in the journey of making multiple decisions relating to SIP.

Routes available and documentation

An investor can invest in SIP through either a mutual fund distributor (MFD) or on their own. A MFD can help you right from recommending schemes as per your risk appetite to documentation and complying with KYC norms. Through the MFD, you can invest in the regular plan of a particular MF, wherein they charge commission ranging 0.1-2 per cent.

Investors having appropriate knowledge of MFs can invest in SIPs on their own either through fund house’s Web sites, RTA (registrar and transfer agents) Web sites, platforms such as Groww and Kuvera or portals such as MFUtility and MF Central. Here, they invest in direct plan of mutual fund and the expense ratio is lower compared to regular plan.

Whichever route you choose, you need to follow a documentation process — submit documents such as PAN, address proof, passport size photograph and cancelled cheque; linking bank account with the MF account and enabling a one-time mandate for auto-debit of the specific investment amount on a chosen date every month.

Ultimately, a tech-savvy investor may be able to manage fund selection and documentation process on your own, while those who require certain hand-holding can connect with the MFD.

SIP amount and duration

There is no particular right amount as such for SIP. You might have SIPs in multiple MFs based on your short-term and long-term goals. Hence, the amount and duration for the SIP can be based on your goals. For instance, you have planned to retire in the next 30 years and with by the time you wish to build a corpus of ₹3.5 crore considering factors such as inflation. Assuming you invest in an equity scheme which can fetch you about 12 per cent annualised return (XIRR), you need to put in about ₹9,950 every month. For a short-term goal you can take a more conservative estimate if you have invested in a debt fund. The time period and the amount decided should also be based on your income level. Some salaried employees consider investing about 20 per cent of their monthly income into SIPs and also time their goals accordingly.

Further, if you are a salaried individual and get a regular increment of say 10 per cent, you can also consider using the Step-up SIP facility. Here, you can instruct the fund house to increase your monthly instalments every year by say 10 per cent or ₹1,000 so that your salary hikes also get invested regularly. This might also help you reach your goals faster.

On the contrary, if you are short on funds due to temporary financial challenges, you might miss SIP instalments or think of cancelling the same. Missing SIP ECS mandate might lead to certain penalty by the bank, whereas cancelling it might result in going through the process all over again when you wish to restart the same. Rather, you can avail the ‘Pause SIP’ facility. It allows you to pause the SIP for a period typically ranging one-six months depending on the AMC which you can select as per your expectation.

SIP date

You might have heard of certain theories on choosing specific dates for SIP; for instance, a date around the month-end being close to F&O expiry might be beneficial from the returns perspective. However it is yet to be proven that selecting a particular date can create an impact on returns. Also, attempting to time the market in this manner goes against the basic concept of SIP — rupee cost averaging.

Rather, the date for SIP should always be considered based on your cash flow requirements. For instance, if you are a salaried person, you can fix a date which is immediately after the date salary is credited in your account. Keeping a date in such a manner can ensure financial discipline and it can even help you keep your other monthly expenses in check.