SIP Account Explained StepbyStep Process for New Investors

A SIP (Systematic Investment Plan) is one of the simplest methods of starting with investing, especially if it is new to you. An SIP account allows you to invest a regular amount regularly into mutual funds. It enables you to gradually increase your wealth over the years to come, without investing a large amount and risking market sense. There are many SIPs available, making it challenging to select the right one. But choosing the best SIP depends on your objectives, risk capabilities, and time horizon.

This blog will explain what SIP is, how to open an account, and how to choose the best SIP for your objectives and risk tolerance.

 

What is a SIP Account?

A SIP account is an investment account that enables you to make small investments regularly in mutual funds. You make a consistent monthly (or other periodic) contribution instead of giving a lump sum. The method is ideal for a beginner as:

• It minimizes the market risk (due to rupee cost averaging)
• Develops a disciplined savings culture
• Employs the strength of compounding to build wealth over time

In simple terms, a SIP account is like a savings piggy bank that matures over time.

 

How to Invest in SIP

Opening a SIP account is a quick process and can be completed completely online in 30 minutes or even less. Here is a simple, easy-to-understand step-by-step description:

 

Step 1: Select a Trusted Platform

A SIP account can be opened via the following procedure:

• Websites of mutual fund companies

• Investment apps and online brokers
• Banks selling mutual funds

Ensure the platform and broker you choose are SEBI-registered, and make your investments easily trackable.

 

Step 2: Complete KYC (Know Your Customer)

Before any mutual fund investment, KYC is compulsory. You will need:

• PAN Card
• e-KYC: Aadhaar Card
• Address proof
• Passport-size photo

The process of e-KYC is also hassle-free; most platforms now offer e-KYC in a paperless manner, which takes relatively less time.

 

Step 3: Pick the Right Mutual Fund Scheme

The mutual fund you choose will be linked to your SIP account. To pick the appropriate one:

• Write down your goal - what you want to achieve (wealth creation, retirement, child's education, etc.).
• Determine your risk appetite (Low, medium, high)
• Choose your investment duration (either short or long-term)

Example: If you are young and looking to grow long-term, an equity mutual fund is a suitable option. If you are looking for stability, debt funds may be more appropriate.

 

Step 4: Decide Investment Amount & Frequency

• Invest in small amounts - SIPs start as low as 500 rupees per month.
• Select a frequency: monthly, quarterly, or yearly.
• Select an amount that you can afford to go on without financial difficulty.

Regular investments are more significant than a high number of investments.

 

Step 5: Set Up Auto-Debit Mandate

You can connect your bank account and set auto-debit to prevent missed payments. The SIP value will be automatically deducted on the date you have selected monthly.

Auto-debit gives people the choice to automate such payments that occur regularly, and it is paid on time, and does not require human attention

 

Step 6: Track & Monitor Your SIP Account

After activating your SIP:

• Review performance within 6-12 months
• Do not monitor day-to-day fluctuations. SIP is a long-term investment
• As your income increases, slowly increase the SIP amount (this is known as SIP top-up).

 

Benefits of SIP

• Cost-effective: Start with a small budget.
• Disciplined Saving: Creates good financial habits.
• Rupee Cost Averaging: It does not involve much market risk.
• Power of Compounding: Small savings can add up significantly over time.
• Flexibility: Pause, stop, or change your SIP anytime

 

Investment Mistakes New Investors Should Avoid

• Discontinuing or missing SIP because of short-term market volatility
• Failure to have a financial plan
• Only investing in funds that have had high returns recently
• Failure to review their portfolio 
• Failing to monitor SIP effectively
• Failure to diversify their portfolio (Avoid the temptation to put all your money in one fund)

 

Checklist before opening your SIP account

• Set a specific financial goal
• Choose your SIP type based on your risk preference.
• Compare funds based on returns, expense ratio, and manager experience.
• Begin with small amounts and gradually increase later.
• Be a long-term investor

 

Start Your Journey Today!

The most straightforward way for beginners to invest is through a SIP account. SIP does not require extensive knowledge, a large amount of funds, or market timing. Success lies in starting early, making consistent efforts, and thinking long-term.

If you haven't opened a SIP account yet. Today is the time to make a move; your future self will be grateful to you!