Steps in Financial Planning: Tips to Start SIP After Your First Job
Getting your first job will certainly count amongst the happiest occasions of your life. After all, you have officially graduated from being a “Child” to becoming a “Responsible Adult.” Now you are responsible not only for your own financial well-being but also are supposed to shoulder certain financial responsibilities on behalf of the family.
It does not matter if you have no prior experience with Financial Planning. There are various investment options available for beginners that can allow you to foray into the world of investments and help you find your footing gradually. One of the best financial planning tools available for you in the present market scenario is Systematic Investment Planning, popularly known as SIP.
What is a SIP?
SIP or Systematic Investment Planning is one of the most popular investment strategies in the present times. Herein, you select an investment avenue, i.e., a particular mutual fund scheme, that is in sync with your financial goals and risk appetite. Thereafter, you invest a fixed sum in the scheme every month for the desired tenure. Thus, by the time the need for money arises, your SIP would have matured into a substantial sum of money, which can then be used to meet your life goals or any specific financial requirements.
Benefits of investing through SIPs
Following are some of the major benefits of SIPs that you should know about:
- Multiple SIP schemes are available according to your preferences as an investor; this allows you to pick a scheme that matches your financial goals.
- SIP investments offer you the exposure to equity markets but restrict the risk involved by diversifying the investments.
- Mutual funds schemes are managed by experienced fund managers, who use their skills and knowledge to maximize returns on your investment.
- You can claim income tax deduction for up to Rs. 1.50 Lakhs under Sec 80C by investing in ELSS Mutual Fund Schemes.
- After the lock-in period of ELSS, you can readily liquidate your investment and get the money credited in your account within a few hours.
- You can monitor the progress of your SIP investment through your internet banking account on a daily basis.
- SIP investments help you inculcate discipline in your behaviour as an investor.
How to start your first SIP?
If you are interested in starting your first SIP after getting your first job, here are the steps that you must follow:
- The money you wish to invest: First of all, you need to ascertain the amount of money that you are comfortable investing in a mutual fund scheme. This money should be coming from your monthly savings, i.e., after all, your fixed expenses have been taken care of. Mutual fund schemes are subject to market risks, and thus, there are some chances for you might suffer temporary losses. So, your survival should not be dependant on the money you are looking to invest.
- Your financial goals: Secondly, you need to determine the financial goal for which you are looking to start an SIP. The SIP should always be linked to a life goal such as marriage, down payment for car/home, higher education, etc. This will help you determine the duration for which you would want to start the SIP. Besides, you can successfully assess the amount you should invest every month to achieve that goal. Also, if your purpose is tax-saving, then you need to look for a suitable ELSS scheme.
- Activate your wealth management account: As this is your first foray into the world of SIPs, you need to get the wealth management or mutual fund investment feature activated with your internet banking account. This will require you to visit the branch of your bank and signing a form. It will take around two-three working days for the feature to be activated. Once it has been activated; you can proceed ahead with your investment. Alternatively, you can also directly invest through the chosen funds’ official MF website.
- Shortlist different mutual fund schemes: Mutual fund schemes are divided as Index funds, growth funds, debt funds, balanced funds, etc. Thus, you should compare different mutual fund schemes thoroughly before choosing your funds.
- Compare their past performance: As this is your first mutual fund investment, you might not have in-depth knowledge of the market. Thus, your best bet is not to go for a new scheme but choose the schemes with an established record. Look at performance over the last 3 years, 5 years, and 7 year period. This can give you an idea regarding the growth potential of the scheme.
- Select one mutual fund scheme: Now, after the comparison of different schemes is completed, you must select only one mutual fund scheme. Do not be tempted to open multiple SIPs at one go, as you might otherwise struggle with your finances. Start with one scheme that meets your parameters and gradually start new SIPs as you get more experienced with the idea of investing.
- Fix the date for debit: Now that you have shortlisted the mutual fund scheme, you need to link your Savings Account with the scheme and fix a date for debit. Pick a date at least 3-4 days post the date on which your salary is credited so that the SIP is not discontinued. If by any chance, the SIP is not debited on a particular day due to lack of funds, then it would be debited on the same day next month.
- Discontinuing the SIP: If due to any reason you need the funds urgently, you can discontinue SIPs by placing a request online. The present-day market value of the SIP will be then credited to your account by the next business day after deducting any charges. But in case the SIP is within the lock-in period, then you cannot break it before the maturity of the lock-in period.
If you still have not started your first SIP, it is time that you commence your journey into the world of planned investments and start preparing your financials for the future.
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