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How to Start Investing in SIP | 2024 Updated

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Astrid Tran 26 November, 2023 8 min read

How to Start Investing in SIP for Beginners? Ever wondered about a strategy that not only simplifies the complex world of investments but also makes it accessible to everyone?

Enter the Systematic Investment Plan (SIP), a widely embraced approach in the investment fund domain. But what makes SIP stand out? How does it effectively manage risk, making it adaptable for newcomers?

Let’s explore the foundations of SIP, unravel its advantages, and take a closer look at the basic steps of how to start investing in SIP ultimately.

How to Start Investing in SIP

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What is The Systematic Investment Plan (SIP)

A Systematic Investment Plan (SIP) stands out as a widely embraced strategy within the investment fund domain. It represents a flexible and approachable avenue for investors, enabling them to systematically inject a predetermined amount at regular intervals, usually on a monthly basis, into a chosen investment fund. This approach allows investors to accumulate profits over the long term while adeptly navigating market fluctuations. 

A good example is a new graduate with a regular monthly salary of 12 million. Right after receiving his salary every month, he spends 2 million to invest in a stock code regardless of whether the market is going up or down. He kept doing that for a long time.

So, you can see that, with this way of investing, what you need is not a large lump of money, but a stable monthly cash flow. At the same time, this method also requires investors to invest continuously over a long period of time.

Advantages When Investing in SIP 

how to get started investing in s&p 500
How to start investing in SIP to brings many benefits in long-term

Average the investment’s input price (dollar-cost averaging).

For example, if you have 100 million to invest, instead of immediately investing 100 million in a stock code, you divide that investment into 10 months, each month investing 10 million. When you spread your investment over 10 months, you will benefit from the average purchase price of inputs over those 10 months.

There are some months when you buy stocks at a high price (fewer shares purchased), and the next month you buy stocks at a low price (more shares purchased)… But in the end, you will definitely benefit because you can buy it at an average price.

Minimizing Emotions, Maximizing Consistency

When investing in this form, you can separate emotional factors from investment decisions. You don’t need to have a headache thinking: “The market is falling, prices are low, should I buy more?” “What if you buy while it’s going up, then tomorrow the price goes down?”…When you invest periodically, you will invest regularly no matter what the price is.

Affordable, Time-Efficient Investment for Everyone

You don’t need a lot of money or too much time to invest in SIP. As long as you have a stable cash flow, you can invest in this form. You also don’t need to spend too much time every day observing the market, or thinking twice about buying and selling. Therefore, this is a form of investment suitable for the majority.

How to Start Investing in SIP for Beginners

How to Start Investing in SIP? These basic steps illustrate purposes and real outcomes depending on market dynamics and individual circumstances. Prioritize comprehensive research and consider seeking advice from a financial professional before making investment decisions.

How to Start Investing in SIP for Beginners
How to Start Investing in SIP for Beginners

Choose a SIP Index Fund

  • Tip: Begin your investment journey by exploring SIP index funds that resonate with your financial objectives. Opt for funds linked to reputable indices such as the S&P 500.
  • Example: You might select Vanguard’s S&P 500 Index Fund for its robust performance tracking the S&P 500.
  • Potential Outcome: This choice provides exposure to a diversified portfolio of leading U.S. stocks, setting the foundation for potential growth.

Evaluate Your Investment Objectives and Risk Tolerance

  • Tip: Assess your financial goals and risk comfort. Determine whether you lean towards long-term growth or prefer a more cautious strategy.
  • Example: If your aim is sustained growth with moderate risk, consider Vanguard’s S&P 500 Index Fund as it aligns with this risk profile.
  • Potential Outcome: Aligning your fund selection with your risk tolerance enhances your ability to weather market fluctuations.

Initiate a Brokerage Account and Fulfill KYC Requirements

  • Tip: Commence your investment journey by establishing a brokerage account with a reputable platform like Charles Schwab or Fidelity. Complete the essential Know Your Customer (KYC) requirements.
  • Example: Open an account with Charles Schwab, submitting the necessary identification and proof of address for the KYC process.
  • Potential Outcome: Successful account creation grants you access to commence investing in your chosen SIP index fund.

Establish Automated SIP Contributions

  • Tip: Set the stage for consistent investing by determining a monthly contribution (e.g., $200) and arranging for automated transfers through your brokerage account.
  • Example: Automate a monthly investment of $200 into Vanguard’s S&P 500 Index Fund.
  • Potential Outcome: Automatic contributions harness the power of compounding, fostering potential long-term growth.

Regularly Review and Adjust as Needed

  • Tip: Stay actively engaged by regularly reviewing your SIP index fund’s performance, and making adjustments when necessary.
  • Example: Conduct quarterly assessments, adjust your SIP amount, or explore other funds based on market conditions.
  • Potential Outcome: Periodic reviews empower you to make informed decisions, adapt to market trends, and stay aligned with your financial objectives

Bottom Line

Do you get how to start investing in SIP now? Systematic Investment Planning (SIP) is not just an investment strategy but also a path that connects simplicity and growth in the financial world. Its ability to average input prices through dollar-cost averaging, minimize emotional volatility, and provide a streamlined, time-saving investment path for everyone makes it an outstanding choice.

Furthermore, SIP is a guiding philosophy that simplifies complexity and encourages discipline, information, and help for those who want to increase their personal finances.

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Frequently Asked Questions

Which SIP is good to start?

This investment method is only suitable for financial products that can be purchased piecemeal, for example, stocks, gold, savings, cryptocurrencies, etc. Basically, if it is a long-term investment, the asset value will definitely increase over time. In the first months and years, because the total investment capital is still small, you can accept high risks and profit from large market fluctuations.

How much money is suitable for a beginner to invest in SIP?

If you invest $5,000 in SIP, the amount will be distributed across the chosen mutual fund in regular installments. For example, with a monthly SIP, your $5,000 might be invested as $500 per month over ten months. Consistency is more important than the initial amount, and you can always adjust as your financial situation improves. Regular monitoring ensures your investments align with your goals and market conditions.

How can I start in SIP?

How to start investing in SIP? The necessary condition for you to be able to invest periodically is to have a stable cash flow. The monthly amount of money you set aside for investment needs to be completely separated from other life needs, including urgent needs such as health risks, and unemployment risks… Periodic investments continuously, that is, the investment is unlimited in time.

Therefore, you need to be mentally prepared that this is a long-term investment, which can last up to ten years. A little advice here is that before you start investing, you should build an emergency fund for yourself. This is money to help you deal with emergency situations in life.

Ref: HDFC bank | Times of India