What is SIP? How to Invest in Mutual Fund through SIP?

 You have landed on the right page if you are a new investor and want to start investing with fewer risks.

In this blog, I will be sharing all the details step by step to start investing in Mutual Funds SIP where you can get good returns.

Before going further, I want to quote “KNOW YOUR LIMIT!!” and “The Best Time to Start Investing is ALWAYS NOW for Long-term SIPs”

 

Grow your money with SIP

Every investor should first create or understand their Risk Profile. What I mean by risk profile is how much return you are expecting and how much risk you can take. Accordingly, we have to set our long-term and short-term goals before starting our investments.

Let’s start with what is Mutual Fund and SIP.

Mutual Fund: It is an investment scheme where an Asset Management Company collects money from individuals and their professionals will invest this money to get good returns, let’s simply say in stocks for now. There are two ways to invest in mutual funds Lumpsum and SIP.

SIP: A Systematic Investment Plan is like a recurring deposit account in Banks where a certain amount will be invested on a regular basis. Unlike Banks RD, here your money will be invested in equity(stocks), debts, etc.

With a SIP, you invest a small amount regularly for the long term. This gives you the benefit of compounding and creates wealth. Search for “Power of Compounding” to understand this better.

Under SIP you will be seeing multiple different categories like equity, debt, hybrid, index, and others. Of all equity has the highest risk and debt has moderate risk and you will get returns also respectively.

We will see more about equity schemes, based on the Market Capital(Current Market Price per share * Total Number of Outstanding Shares.) schemes are further divided as follows:

In Large cap funds, the major portion of the investment is done in the top 100 companies as per market capitalization. In Mid cap, a large portion of the investment is done in medium-size companies i.e 101–250 companies after large cap. In Small cap, a large portion of the investment is done in companies that come after Mid Cap. Stocks of small cap are risky and highly volatile. If it performs well, you can get a better return compared to the large and mid cap.

To beat the market volatility risk, Flexi cap funds are good where investment can be done across the market as per the market situation. ELSS or Equity Linked Saving Schemes are tax saving schemes where you can claim the deductions under Section 80C with a lock-in period of 3 years.

The last one I want to mention is the Hybrid/Balanced Fund in which investment is done in equity as well as debts, these are highly diversified funds with comparatively lower risk.

You may ask why invest in SIP instead of a Banks RD Account?

So the answer is, Bank RD will give you a lower fixed ROI and it has lower risk, On the other hand, as your SIP money will be invested in stocks your ROI/Return is linked to the market. It has the potential to give you better returns considering it will have a Higher risk also.

Don’t worry, I am here to guide you on how to select the right SIP to lower the risk and get better returns. Particularly, we will see in detail about the SIP schemes under the equity category.

First, select the type of Plan, for example, the scheme name “Axis Bluechip Fund Direct Plan Growth”. Let’s understand these two terms below:

        1. Every Mutual Fund has two plans- a Direct and a Regular Plan. Direct plans are bought from AMC. Regular plans are bought through mutual fund distributors. They act as an intermediary between investor and AMC, so in the case of a regular plan you will incur an extra fee

        2. In the Growth Option, the profits made by the scheme remain invested in the scheme and another option is IDCW/Dividend where the profits made by the scheme may be distributed to you partially or fully

Now we will see how to select the SIP equity Scheme.

Check your Money is distributed wisely in the Sector as well as in any Equity

        1. Investment Goal: The risk of losing money in the SIP equity scheme is higher in the short term, You should have a long-term goal for investing in this category and be disciplined towards your set installments, and don’t withdraw your money early. You can withdraw partly in emergencies.

        2. Performance of Fund against Benchmark: Make sure the fund has gone through the different levels of the market and if it’s beating the benchmark. At least check if it’s giving a consistently good return for 3 years. Always look for the annualized return when you are comparing funds

        3. Fund Manager and AMC track record: Check about the fund manager’s experience, the performance of the other funds managed by the same fund manager if any, and the track record of the AMC

        4. Expense Ratio: It’s a commission charged by AMC to manage the fund, it can range from 0.1% to 2%. Depending on the fund it will vary, but the lower the expense ratio better will be your return. Some specialized funds can charge a higher expense ratio, you can look for that specific category average while comparing the Funds

        5. Exit Load: This is a fee charged by AMC if you redeem your money within the mentioned time. Mostly it is for 1 year, you don’t have to worry about this if your goal is for the long term. The lower the exit load of the fund more preference you can give to that fund

        6. Fund Rating: A 5-star rating is best, simply putting the higher the rating better the fund is

        7. Taxes: Long-term capital gain(holding period more than 12 months) is taxed at 10% for profit > RS.1 Lakh. Short Team capital gain(holding period less than 12 months) is taxed at 15% on profit

        8. Emergency Fund: This is the most important point of all, don’t invest 100% of your savings. Keep some good amount needed in emergencies. You can keep this in liquid funds or Bank Deposits.

I hope this will help you and get you started investing in Mutual Funds.

If you are wondering where you can start investing, Groww is the best choice. Let me plot a few of the points for you.

1. You will be able to check almost everything in the Groww app I have discussed above.
2. There is no brokerage or account opening fee. Groww is the only app where you can open a free Demat account
3. Opening an account in Groww is completely paperless
4. No Annual maintenance charge

You can join me and 3Cr+ million Indians on Groww to invest in Stocks, US Stocks, Fixed Deposits, IPO, SGB, and Direct Mutual Funds. Create your free demat account by using this link here:  https://app.groww.in/v3cO/hyhkx3qj

 

👉 Research well before you start investing. After Downloading the App, take some time and start.