Personal Finance

Taking you through the SIP route

K.Venkatasubramanian | | Updated on: Apr 07, 2019

Before setting up a SIP, be clear of the operational aspects

The systematic investment plan (SIP) has become the chosen route for investing in mutual funds for as many as 2.59 crore people. Equity, debt and hybrid schemes of all kinds allow you to invest sums every month. To make the best of these investments, you need to be aware of certain operational factors while investing via the SIP mode.

These include setting up a SIP, minimum number of instalments to be paid, goals you must save towards, stepping up or reducing amounts, and so on. Also, you must be clear on whether you wish to invest in direct plans of funds or route them through an advisor to regular plans. Here, we discuss these aspects in detail.

Getting started

Starting a SIP is very simple, with asset management companies (AMCs), online distributors, offline financial advisors and apps allowing you to select funds to invest in. Many banks, too, allow you to set up SIPs via their netbanking facilities.

You can start SIPs online or offline by filling up the physical application forms. As a first-time investor, you will be asked to comply with the know-your-customer (KYC) norms and may have to produce proof of identity and address, and PAN.

The KYC process is a one-time affair and, once done, you can invest in the schemes of all fund houses.

If you are a savvy investor and can take your own decisions while choosing funds, you can opt for the direct plans offered by AMCs, third-party apps, online fintech portals or with agencies such as CAMS and Karvy.

Direct plans charge 50 to 100 basis points less compared to regular plans as there are no commissions payable to distributors.

But if you are a first-time investor, it would be in your best interest to take the help of a financial advisor to choose the right fund.

Linking accounts

You must link your bank account with your mutual fund house and set up a mandate to transfer sums on a monthly basis. This can be done by giving a standing instruction or using the electronic clearance facility of your bank.

Then, you need to specify the dates on which you want the amounts to be debited from your account.

Many tend to have their pay day as the debit date. But it would be better to have the debit a few days after the salary day, as any delay in pay due to weekends or public holidays on those dates can be avoided.

Most fund houses have specified dates on which SIP debits are allowed; you can choose the date that suits you. Online portals and investment websites allow you to invest on many other days as well. Just to illustrate the importance of dates, if you set 29 as your debit date, you could face a challenge during non-leap years in the month of February!

Choosing amounts

Ensure there are funds in your account on the debit day. In case your investment account is different from your salary account, remember to transfer the SIP amount without fail. Set up an automatic mode of transfer if you tend to be forgetful.

In case your bank account is not adequately funded, your SIP investment would fail. If there are repeated failures — say, for three continuous months — your SIP would be cancelled by the fund house. Besides, your bank may levy charges as penalty for not honouring the SIP mandate.

Every fund has a minimum investment amount for every scheme — typically ₹5,000. Therefore, you must run SIPs at least till the minimum amount threshold is reached. Usually, fund houses insist on six instalments.

SIPs can be started for as little as ₹500 every month, making it affordable for many to invest.

Investments and timelines

You can increase or decrease your SIP investments. If you wish to increase them, you need to fill the online form and fund your bank account.

In case you want to reduce your SIP amount, you need to cancel the present mandate and create a fresh one with the reduced amount, by filling up the SIP form of the respective fund house.

Another important aspect to note is the time for which you wish to run the SIPs. Financial advisors typically ask investors to coincide the SIPs with specific financial goals — children’s education, their marriage, your retirement, and so on.

You can give a specific number of years or choose the ‘perpetual’ option that will ensure that investments continue till you decide to stop them.

Published on April 07, 2019
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