Investing in Mutual Funds for Beginners | What is SIP in Mutual Fund?

Hello readers! Today we are going to help you gain financial strength yes you heard it right we at financehelps.in are here with the motive to make our readers financially strong not only by providing knowledge but also help you in learning the procedure to implement the same with clarity in your concept. And here also we will discuss details on Investing in Mutual Funds for Beginners.

Today we will understand how a small amount of investment can fetch you a good amount without any burden of investment. We are talking about SIP in Mutual Funds. We all have heard in advertisements Mutual funds are subject to market risk read all scheme-related documents carefully. So we are here to take you through the tour of this risky yet simplified process of Investment.

We will start with the basics of mutual funds first.

What is mutual fund and what is mutual fund sip meant?

Mutual Fund is a financial instrument which take money from different investors and invests the money collected in different securities like shares, stocks, government or corporate bonds, and other assets. It’s basically a group of different investors investing in a fund which consist of several assets like equity, debt, money market instrument, and others.

Generally, mutual fund investments are made via professionals who manage our money, whom we call as money managers or fund managers. They try to diversify funds of an investor in different sectors to ensure maximum return on investment as per the investor’s goal. Once the investment is made an investor is allotted with the units with respect to the amount invested.

Now let’s understand why we call it a mutual fund. When you invest money in any fund though you don’t directly own the company stock but you become an equal gainer and loser in case of profit and loss along with the other investors and thus we term it as mutual. 

One can invest in mutual funds either by giving cheques to an agent or SIP. Today we will talk about Sip and understand how it works.

What is sip in mutual fund?

SIP stands for Systematic Investment Plan. SIP leads to auto debit or manual transaction of a certain amount in a periodic manner from the investor account and invested in the selected mutual fund. It helps in starting with a small amount which one can increase as per their convenience.

Like every other thing, SIP too has its Pros and Cons (sip advantages and disadvantages):

Let’s discuss on it;

SIP Advantages: –

• Through SIP auto debit of the specified amount takes place thus you don’t have to worry about the investment.
• It helps one to start as small as investing 100/- a month
• It helps in escaping market volatility as we invest on a monthly or periodic basis it helps in averaging the volatility of the market.
• SIP follows the compounding method which helps us in saving a good amount little by little
• It is flexible as we can switch the amount of investment as per our convenience as and when required.

SIP Disadvantages:-

• SIP takes a certain time for actual application and starts.
• SIP also has some predefined dates for investment.
• Returns get lower in the rising market
• If you don’t have the consistent cash flow it might be challenging to invest via SIP.

Looking at the Pros and cons it’s completely your choice what you want to do. But for Investing in Mutual Funds for Beginners, who are going to invest in mutual funds in directly online /digitally should have basic knowledge e.g. types, fund risks analysis, NAV, CAGR, Min. investment amount, Exit load charges, Expense ratio, AUM, Lock-in period, fund manager, investment sectors, etc.

Details Process in Investing in Mutual Funds for Beginners:

There are several ways in which you can invest in mutual fund:

Through Agents-The most used way for investment in Mutual Funds are through agents.

Via Online Platform -You can directly login through the respective fund house portal and start investing. Online one can even invest in several funds via Available online portals like Karvy, Zerodah, and Edlewiss to name a few.

Direct -One can directly visit the respective fund house and deposit the duly filled and signed form with respective documents.

Today we will learn here to invest online via available platforms.

Let’s better understand it with the help of an example:-

Let’s say Rimpal wants to save money to buy a car which she is planning to buy it after a span of 3 years. Her monthly income is 35,000/- out of which she wants to save enough to buy a car which costs approximately 5.5 lk. Now if she invests 15000/ month for a period of 3 years and we consider the interest rate as 10%. By investing 15000/  month she will have approximately 6,30,000 at the end of 3 years (her investment was 540000/- approx. and interest on her investment is around 91950/- approx., which gives her 6,30,000/- )

Note- all value given in the above example is for learning and understanding purposes only.

How to start SIP online in Mutual Funds?

Now before we start with the steps the most important thing is to understand the goal towards the SIP. The amount which we expect from the SIP. We need to keep a soft copy of all our identity proofs.

Step-1: Go to the respective site of the fund house where you get the option of invest with us /Initiate a transaction. It varies in different websites.

Step-2: First it will ask for the PAN no. and initiate the signup procedure.

Step-3:- Once you signup it will ask for KYC updating.

Step 4:-Now other details like scheme name plan and option (for the option we should choose the direct option) etc needs to be updated.

Step-5:-After this one needs to confirm if they want to invest in lumpsum/sip and the date of SIP initiation.

Step 6:-Then payment of the first instalment needs to be done for which the payee needs to select the payment option as net banking .then the site takes him to his respective bank site and payment of the sip needs to be made

You can also start investing SIP through specified apps, provided by online portals.

1. Create an account / register an account in apps.
2. Login to Apps.
3. Select Mutual Fund AMC-Asset Management Company.
4. Select the SIP option then, enters the initial investment amount.  Periodic instalment SIP amount, frequency, etc., and finally create SIP.

FAQ:

Q1: Can I start SIP by myself?

Ans. Yes definitely following the above-mentioned steps you can easily do it.

Q2: Can I start SIP without broker?

Ans. Yes absolutely.

Q3: Can I invest in SIP online?

Ans . Yes, you can.

Q4: Is SIP risk free?

Ans:-No, without pain there is no gain. SIP does contain risk it depends however as we invest on a monthly basis thus our investment maintains the average.

Q5: Can I withdraw SIP anytime?

Ans:-Yes one can withdraw SIP anytime unless ELSS, where there is a lock-in period in ELSS-MF. However, there is a clearance period which is generally T+3 (may vary, please confirm by fund house/ service provider). Also, you have to look into “Exit Load” charges and applicable periods.

Q6: Is SIP better than FD?

Ans:-Now this varies with respect to every individual perspective if you want risk free fixed return then FD is for you. But if you are ready to take risk and uncertain amount of return then go for SIP. However, in maximum cases, SIP does give a good amount of return if kept for long term.

Q7: Will I get my money back if I cancel SIP?

Ans:-Yes but it will take the time period depending on the type of fund. The final return amount depends on many factors like P&L, exit load charges, etc.

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Hi, I’m SG. Pradhan, the author & owner of the website “financehelps.in”. My expertise is in Financial Management & Accounting, Quality Management, Operation Management, Business Excellence, and Process Excellence. I am mech. engg. & certified internal and lead auditor.