A Systematic Investment Plan (SIP) — a fixed sum invested regularly — is arguably the best way to put money in a mutual fund. It helps you start in small doses, brings in investment discipline, reduces average investment cost, and gives compounding benefits in the long run. Here's how you can start out on your SIP.
Multiple modes: You can invest directly with the fund house, through registrar and transfer agents, such as CAMS and Karvy, or through MF Utility — a transaction portal promoted by mutual fund industry body AMFI. You can also invest through intermediaries, such as distributors, brokers and mutual fund investment platforms. Investing directly with the fund or through transfer agents or MF Utility saves you commission cost but you need to do your own research.
You can invest offline (using physical forms) or through the online mode. And no, you don't necessarily need a demat account to invest in a mutual fund.
KYC compliance: What you do need before starting a mutual fund investment, including SIP, is compliance with know-your-client (KYC) norms mandated by market regulator SEBI. Individual investors need to submit their proofs of identity and address and complete in-person verification to fulfil the KYC requirement.
Thankfully, this is a one-time affair — the KYC process once done in the securities market holds good for other players too. So, if you are already KYC-compliant, you can start the SIP without further ado. Recent rules also require investors to submit their self-declaration regarding FATCA, a US tax and information exchange law to which India is also a signatory.
Flexible choices: Most mutual fund SIPs offer a lot of flexibility. You can invest on a monthly or quarterly basis. You can choose when to invest — from five or six dates in a month.
You must invest for at least six months and continue for as long as you want; you can stop the SIP anytime after six months. You can invest as little as ₹500 a month (some funds even allow ₹100 as the minimum investment) and change the amount as you go along.
You can issue post-dated cheques or instructions for auto-debit from your bank account. You are not charged anything extra for opting for SIPs as against lumpsum investment in the fund.
It may take a fortnight to a month for your application to be processed and the SIP instalments to commence.
The websites of most mutual funds have detailed explanations and frequently asked questions (FAQs) which explain how SIPs work and how you can start one.
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