Whenever people begin their investment journey, they secretly wish to become millionaires, almost overnight. However, to effectively create wealth you need years of consistent investing at a gradual pace. Investments need time and also a boost from time to time to grow. Mutual funds are an effective investment tool to build a corpus. When it comes to investing in mutual funds, Systematic Investment Plans (SIPs) are a convenient option.
In this article, we look at SIP investments and how increasing your online SIP investment every year can be beneficial to you.
What Are SIP Investments?
Many investors think of SIPs and mutual fund schemes as synonyms, however, that is not the case. SIPs are merely tools that allow you to invest in a mutual fund scheme over a period of time. It can be monthly, quarterly or semi-annually depending on your financial goals. It acts as a convenient option for salaried individuals to regularly invest in mutual funds. The money can get deducted from their account automatically thereby engraining a financial discipline.
Most mutual fund managers advise investing through SIP investment plans rather than lumpsum investments. This is because SIPs help you to average your purchase cost and maximise returns. Since you invest regularly over a period irrespective of how the market conditions are, you automatically end up buying fewer units when the market is high and vice versa. This helps to average out the purchase cost of your mutual fund units.
How To Start SIP Investment?
You can start an SIP with a minimum amount of Rs. 500. Here is how to start SIP investment if you wish to buy mutual funds.
• Basic Information
The first step of SIP investment requires you to provide all your basic personal information in an online form such as your name, date of birth, address, mobile number, etc.
• Upload Documents
In the next step, you are required to upload a scanned copy of your PAN card and address proof.
• Video Call
Next, you are required to complete the IPV or In-Person Verification by selecting a time slot which is convenient for you. This requires confirming your physical existence through a webcam video call. It is advised to keep your address proof and original PAN card handy as you will be asked to show it during the video call.
• Aadhar Based eKYC
The above procedure for SIP investment can be simplified if you have an Aadhar card. You have to enter your Aadhar number and authenticate it with a One-Time Password (OTP). This will pre-populate the online form with all your basic information details available in the UIDAI database.
IPV through a video call is not required if you complete the eKYC procedure through Aadhar as the UIDAI database already has your biometric information. However, there is a statutory limit which will not allow you to invest more than Rs. 50,000 per fund house in a financial year if PAN card details are not submitted by you. You can submit your PAN card and enhance this limit.
• The Final Step
Lastly, visit the website of IndiaNivesh Ltd. and register for a new account. Keep your phone and cheque book near you as you would be required to verify your account through OTP and enter your bank details. Once the account is created, you can log in and choose the mutual fund scheme you are interested in. Choose the SIP date and submit your request.
Benefits of Increasing Your Online SIP Investment Every Year
Here are some advantages of increasing your SIP every year.
• Builds A Bigger Corpus
When your income and surplus increase every year, it makes sense to increase your SIP investment too. It adds to the power of compounding and helps accumulate greater wealth by building a bigger corpus. Even a small 5% to 20% increase in the SIP investment plan at the end of 10, 15 or 20 years can make a big difference. In addition, you can avoid increased documentation as it will reduce the necessity of creating and tracking multiple stocks.
• Counters Inflation
While investing, the return adjusted for inflation is a significant factor to be considered. As inflation increases every year, the amount you find substantial today may not have the same worth some years down the line. Hence, if you do not increase your SIP investment amount every year, you ignore inflation which erodes the purchasing power of your hard-earned money.
• Achieve Your Financial Goals Faster
Suppose you start a SIP investment plan of Rs. 5,000 per month. Assume an annual return rate of 12%. After 10 years, your corpus would grow to be Rs. 11.6 lakhs. However, if you decided to increase your SIP contributions by 10% every year, after 10 years your corpus would grow to be Rs. 16.8 lakhs. That is a difference of over Rs. 5 lakhs. As the years multiply, the difference would be a lot more.
How To Increase Your Online SIP Investment?
Here are three simple ways by which you can increase your online SIP investment.
• Select The Right Scheme
If you are interested in SIP investment plans that allow step-up option where you can enhance the amount regularly, ensure that it matches your risk profile. For example, if you are an aggressive investor, you can opt for a mid-cap equity fund. Or, if you are a conservative investor, you can look at balanced funds.
• Determine The Frequency
You can choose the frequency and the amount by which you want to increase your SIPs. It can be semi-annual or annual. An appraisal or bonus is the best time to start increasing your SIPs. It is always a wise decision to align your additional earnings to existing financial goals.
• Identify Your Investment Cap
You can decide to put a cap on the maximum amount of money you wish to invest every month in SIPs. When you choose this option, your SIPs can keep increasing till they hit the ceiling amount set by you. Once this maximum limit has been hit, the SIP then acts as a regular SIP with the same investment amount every month.
SIPs allow you to invest periodically and help your wealth grow. You can achieve your long-term financial goals with regular small investments and gradually increase your SIPs every year to achieve your financial goals sooner. You can either increase your SIPs by a fixed amount or a certain percentage, depending upon your financial goals. You may contact IndiaNivesh Ltd. if you wish to start a SIP investment plan. We can help you choose the right mutual fund schemes based on your financial goals, risk tolerance and investment horizon.
Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.