How to invest through SIP (Systematic Investment Plan)

SIP or Systematic Investment Plan allows one to invest a small amount of money periodically (quarterly, monthly, weekly) into a selected mutual fund.

You’ve been reading this definition if you’ve been doing your research in SIP. Isn’t it?

If you invest a lump sum in equities, it will not be much beneficial for you as a large portion of your income will be locked in those assets. Those funds may perform well initially, but a fluctuating market can never guarantee anything. Say, for example, the particular fund that you have invested in starts under performing continuously for two to three years. If you are well-aware of how to invest in SIP and have invested a major part of your savings in it, your returns will invariably be zeroed down. It may even become negative. If you have financial liabilities like personal loans or home loans etc. to repay, that may not be very likable since a high inflation period like this may hamper your financial position.

Moreover, you can avert such situations with Systematic Investment Plan (SIP) as it allows you to monitor your fund’s performance from time to time. SIP is beneficial as it will allow you to invest in a fund in periodic installments. After that, you get to decide your level of savings if you have already set aside a significant amount of money for your insurance premiums and future emergencies. And the, you can decide upon how to invest in SIP in India. However, you must be careful with fund allocation as it is an important step in SIP investment. Always be choosy in the selection of funds and make sure that you do not have an excess number of equity mutual funds. Instead of investing in too many funds, it is advisable to invest only in three to four funds that have been consistently performing well over the past years.  In the beginning, it is important to build a well-diversified as well as a balanced portfolio. This will ensure a good start for your investment. Investing in a combination of large-cap-oriented, small- and mid-cap funds, multi-cap funds can be a good call.

*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply

How much to invest in SIP?

How to invest in SIP in India is a big question. However, it is also important to know how much to invest in a SIP.

Well, you should invest at least 50% of your money into equities in the above-mentioned asset classes. It will assure you a robust return over a period of time. However, for that, you are required to be patient. You should keep in mind that capital market investments are always associated with some amount of risk or volatility. And, this may affect your returns. That is why long-term equity investments are always better, as market irregularities get corrected over a period of time. Therefore, it is advisable to stay invested till the market evens out.

If you keep moving out of your funds you enter into new assets whenever there is a dip in the market, it will only increase your expenses. That is because this practice is the exact opposite of what is advised by financial experts- “buy your shares when the prices are low and sell them when the prices are high”. Moreover, it will also reduce the overall return that your fund is expected to earn. Exiting midway will only make you miss out on many good market days that could have fetched you quite a high return. This means you should have an in-depth knowledge of how to invest in SIP in India.

As the capital market is mostly volatile, it is quite natural that your fund will experience both profit and loss from time to time. But the trick is to stay invested as long as possible to make your money grow.  It is possible only when you know how to invest in SIP in India.

Also, it is wrong to exit your funds or stop the SIP even when the market is under-performing.

There is more to it!

Systematic Investment Plans (SIPs) help in both market cycles- during profits and during losses. It is mainly because, when you consider your fund selection, a balanced portfolio always ensures that, at the end of your investment period, your return turns out to be more than the amount you invested. Therefore, it is important to stay put and never deviate from your goal of long-term savings for future.

How to Set SIP Goals?

Before we talk about how to invest in SIP in India, let’s talk about SIP goals. The goal of SIP investments is to ensure that your portfolio gets the required risk profile as accepted by you along with a good diversification across asset classes. The diversification is crucial if you really want to earn the maximum return from your investments.  Diversification of assets become easier with SIP as it is a simple as well as a flexible investment plan. Generally, the money is auto-debited from your bank account and gets invested into the specific mutual fund scheme that you had already purchased. This allocates your with a certain number of units depending on the market value of your funds (Net Asset Value or NAV) for the day.

Through a simple Google search, it will pull very easy for you to check out all mutual funds in India along with their historical returns. Ensure that the mutual funds you select meet the following criteria:

  • The total Corpus, or the asset size, of the mutual fund is large. 500 Crore is a good reference point. Of course, there are outstanding mutual funds that do not have 500 Crore in assets, but if you're a newcomer, this a good general rule of thumb.
  • The mutual fund has been in duration for at least 5 years (the longer, the better).
  • Always choose a reputed fund house. There are several fund families or fund houses in India such as Reliance, HDFC, SBI, Birla Sun Life etc. So, if you are able to recognize any of them, you are probably good to go.
  • SIP should be in conjunction with your bank. If it is not, you need to contact the relationship manager of your bank and he will get you set up.

How SIP works?

We will discuss how to invest in SIP in India. But first let’s get to know how SIP works:

A Systematic Investment Plan (SIP) works in a systematic way allowing you to invest on a monthly basis. Here is an example of how to do SIP:

Let’s say your monthly salary is Rs. 60,000/- and you set aside 10% of your monthly salary towards an SIP. A detailed investigation on the largest mutual funds in the country will help you see how a number of funds have consistently outperformed the overall market over a large period of time. Take for example SBI blue Chip Fund. It is one of the largest mutual funds in India, which was launched in June 2006. The fund has over Rs. 1000 Cr. in assets and this was achieved within a period of 10 years.

If you have started investing in this plan through SIP from June 2006, Rs. 6000 will be automatically taken out from your fund every month. The money will be invested into the fund on a monthly basis. This is exactly how we take care of the two basic tenets of investments as mentioned above- consistency and discipline. As Systematic Investment Plan (SIP) automatically takes out Rs. 6000/- every month, the consistency of investment is maintained. This also ensures a disciplined investment as the mutual fund company invests the money on your behalf.

The major advantage of Systematic Investment Plan (SIP) is the power of compound interest. Rs. 6000/- that you keep aside every month, accumulates over the years to turn into a huge amount of money. For example, if you have started investing from June 2006, then till March 2015, the number of times Rs. 6000 has been auto-deducted from your account is 106.  So, total Rs. 636,000/- (Rs. 6000 x 106) has been auto-debited from your account and got invested in the Capital market.

You will get something close to 17% as the overall return (annualized compounded return).

So, your investment gets doubled in value. Better yet, Sensex that gauges the performance of the market goes up in value by 188% during those 104 months of investment. However, this mutual fund goes up in value by more than 300%. In general, a good mutual fund always and consistently outperforms the market.

The best way to get advantage of SIP investment is to just get started. If you are not an expert in market timing, no need to worry because, SIP takes care all of your investment needs. You must know how to invest. You can contact the relationship manager of your bank and let them know that you want to start investing through SIP. You can also buy mutual funds online. There are a number of mutual fund companies available. So do a little research and start investing in SIP as early as possible.

Here you might have got a slight idea about how to invest in SIP in India. Let’s jump to where to invest:

*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply

Where to Invest?

How to invest money in SIP is an important question. However, before making SIP investment you must know where to invest your hard-earned money to get better returns. So, if you are looking for the best SIP plan in India, check the past few years’ performances of the funds to choose the best one. Based on our research we have shortlisted five best SIP Plans in India. These plans will give you an idea to make a well-informed decision. Let’s have a look in the table below:

SIP scheme 5 years’ return 3 years’ return
Aditya Birla Sun Life Medium Term Plan 9.13% 8.39%
Axis Focused 25 Fund 7.66% -9.74%
Birla SL Balanced '95 Fund 16.83% 9.42%
Birla SL Frontline Equity Fund 17.29% 21.74%
DSP BlackRock Midcap Fund 25.68% 16.77%
Edelweiss Large &Mid-cap Fund 2.90% 1.70% 
Franklin India Prima Plus Fund 17.29% 24.55%
HDFC Mid-Cap Opportunities Fund  24.77% 33.33%
HDFC Small Cap Fund 24.31% 21.52%
ICICI Prudential Balanced Advantage Fund 14.39% 9.16%
Kotak Standard Multicap Fund 3.56%  -1.28%
L&T India Prudence Fund 18.36% 10.03%
L&T low Duration Fund   7.49% 6.12% 
Mirae Asset India Opportunities Fund-Reg 18.88% 24.37%
Mirae Emerging Bluechip Fund   8.10% 1.80%
Motilal Oswal Focused 25 Fund 3.69%  -8.25%
Nippon India Low Duration Fund 7.73% 7.50%
Reliance Credit Risk Fund 8.33% 7.87%
Reliance Credit Risk Fund 8.33% 7.87%
SBI Blue Chip Fund-Reg 18.82% 22.74%
SBI Magnum Balanced Fund 17.27% 9.10%
TATA Large &Mid-cap Fund   1.00% -2.45%
See More Plans

Disclaimer: Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by an insurer. Tax benefit is subject to changes in tax laws. *Standard T&C Apply

Based on the market performance and the return rate of last three to five years, we have sorted out the schemes above. Among these five schemes, let us discuss the top two schemes.

Birla SL Frontline Equity Fund (G)

Birla SL Frontline Equity Fund is another open-ended growth scheme. It is best for people whose investment objective requires long-term growth of capital, in which a portfolio with a 100% equity-linked portfolio aims at being as diversified across various sectors and industries as its chosen benchmark index, BSE 200.

SBI Blue Chip Fund-Reg (G)

SBI Blue Chip fund – Reg (G) is an open-ended growth fund in which the minimum amount required for investment is Rs.5000. The fund is the best for investors with long-term goal in mind. The fund invests in a diverse basket of equity stocks of various companies the market capitalization of which is equal to or more than the least market capitalized stock of BSE 100 index. The fund is predominantly large-cap.  The absolute return on Investment of this fund has been 27.7%.  Since, it is an equity-linked fund; the investment associated risk is quite high in it.

These two schemes are considered the best SIPs in India because of the very high rate of return in the past few years.  So, if you want to create wealth for future, investing in a SIP would be the best bet for you.

Mirae Asset India Opportunities Fund-Reg (G)

Mirae Asset India Opportunities Fund-Reg(G) is ranked 2nd in the category of Diversified Equity by Crisil for Q4 2017-18 and the rank has remains unchanged since then. The investment objective could be to generate long-term capital appreciation by investing in equity and related securities. However, there is no guarantee of returns whatsoever.

HDFC Mid-Cap Opportunities Fund (G)

HDFC Mid-Cap Opportunities Fund (G) is ranked 3rd in the category of Small and Mid-Cap by CRISIL for Q4 2017-18 and the rank has remains unchanged since then. The investment objective could be to generate long-term capital income or appreciation by pre-dominantly investing in various Mid-Cap organizations. However, you cannot expect guaranteed returns in the future.

Step-by-Step Guide to How to Invest in SIP in India:

Here, let’s give you a detailed and step by step guide on how to invest in SIP.

Step 1- Understand your Risk Appetite and the Objective of Investment

You should first understand your risk tolerance before investing. In most cases, higher the age and financial obligations lower the risk tolerance. However, if you want a higher return on investment, you will have to increase your risk appetite. After you have assessed your risk tolerance, it is now important to understand why you want to invest. Investments help us meet our financial goals. You can have multiple goals like your kid’s higher education and marriage, buying a new car, vacation, retirement etc. or you can have a particular goal for which you want to grow your wealth. So, it is imperative to know the objective for investment as it will help you get the right portfolio mix of equities and debts.

Step 2- Choose a Mutual Fund for your Investment

You can choose from various mutual fund schemes available in the market. However, the selection of funds should be based on your risk profile as well as your personal financial goals that you want to achieve through SIP investments. The fund’s performance in the past few years should also be taken into account while choosing the funds. Once you have chosen the mutual fund company, you will have to go through the following steps:

    • Fill up the application form
    • Submit a cheque of monthly SIP amount (for offline mode) or fill up ECS form (for online mode)
    • Provide a cancelled cheque
    • Provide your Residential Proof
    • KYC form

Step 3- Select the Date of SIP

As under Systematic Investment Plan (SIP), your money gets auto-debited from your bank account, it is necessary to choose a particular date when it is convenient for you to pay. However, you can choose multiple dates for SIP installment per month. Most Mutual fund companies offer the following dates for the investors to choose from- 1, 5, 10, 15, 20, and 28.

Step 4- Decide on the Duration of SIP

Investment in mutual fund through systematic investment plan (SIP) is the best and the most convenient way to fulfil your financial goals. One can calculate the SIP amount required for meeting your future financial goals.

Step 4- Decide Whether you want to Invest Offline or Online

Both offline and online modes are available under Systematic Investment Plan (SIP). However, the best part of SIP is that it allows auto-debit of money into your funds. So, there is no need for manual money transfer to your SIP account.

Step 5- Stay Invested till the End of your Investment Period

Systematic Investment Plans (SIPs) are the best way to create wealth through long-term investments. You don’t need to check daily prices of Mutual funds and should not try to time the market every day. So, stay free of worries till the end of your investment period.

There are a number of benefits of investing through SIP. So, if you are thinking of starting a long-term financial planning in order to fulfil your future financial goals, SIP investment is the best way to start with.

How to invest in SIP online in three simple steps:

Now that you know about how to invest in SIP in India, let’s discuss how can you begin SIP. Below are the three simple steps to start and SIP online:

1: Keep the Necessary Documents Handy

In order to start an SIP, you simply need a handful of documents, such as PAN card, Address Proof, a Cheque book, and a Passport size Photograph. As the address proof, you can provide you’re a copy of your Driving License, Utility Bill, or Bank Statement. Although your AADHAR Number is not necessary, it will simplify the process if you have it handy. You can process your SIP account online once you have these documents.

2: Get your KYC done

To invest in Mutual Funds via SIP, you must provide certain details, such as your Name, Date of Birth, Address, and Mobile Number in order to get your KYC done. This is just the one-time thing you need to do and you are eligible to invest in multiple funds. To get your KYC done, log onto the website of the fund house of your choice and provide the required details, such as a soft copy of your PAN Card and Address Proof.

3: Start your SIP Online

Once your KYC is successfully done for SIP investment India, you need to visit the website of the fund house you wish to invest in and look for ‘Register’ or ‘New Investor’ link. Fill in the basic details when prompted and create your Username and Password for online transactions.

Written By: PolicyBazaar - Updated: 24 August 2020
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