SIP FAQs: Part 2

Frequently asked questions on systematic investment plans and their answers

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I am a first-time investor and want to invest through SIPs. How do I go about doing so? Can I do SIPs online?
You can invest online directly through the website of the mutual fund company. As a new investor, there is a one-time documentation, called KYC (know your customer), which you will need to complete. If you have an Aadhaar card and online-banking facility, then you can start investing in mutual funds with e-KYC, wherein you can invest up to Rs 50,000 per annum per fund house.

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The other way is to contact a mutual fund agent and invest in the regular plans of mutual funds. The agent will help you with the entire procedure and this is convenient for a beginner.

Is it possible to start an online SIP with auto debits from my bank account?
Yes, many fund companies provide this feature. In order to set up an auto-debit facility, go to the website of the fund house, choose the fund and provide the required details such as the amount and period of SIP. Keep your PAN handy. You will get a URN number from the fund company. Now log into your bank account and enter the number there. Some fund houses may have another method to set up a standing instruction. In this, a small amount (for instance, Rs 1) is credited to or debited from your account.

In the future, if you wish to discontinue your SIP, just login to the fund company's website and exercise the option. You can also exercise this option through your bank, online or offline.

When I invested in SIPs, I was told they would protect against falling markets. But how is it that I am sitting on losses?
An SIP does not protect you against equity-market losses. All it does is that it makes sure that your investments in equity funds are well spread out over a period of time so that you don't catch a market peak. Now, SIP investments, too, will make losses if the market declines steadily after you begin your investments. But because SIPs help you invest in smaller instalments and spread them out over time, you get to average your investments at lower levels in the hope that when stock prices bounce back, those cheaper investments will pay off. If you take stock of your SIP returns over just one market phase, particularly a bear phase, the investment may show a loss.

I invested in some top-rated funds and their SIP returns are lower than lump-sum returns. Why is that so?
SIP investing is designed to max out your returns when you get off the starting block at a market high, keep investing through a decline and then see the markets recovering to scale new highs. It doesn't work well when the markets don't stick to this script.

There are two types of market scenarios where an SIP investment will earn lower returns than a lump-sum investment. One is a steadily rising market. The other scenario is when markets behave like a bell curve: they rise first and then tank.

What if I choose a different date or split the SIP into weekly instalments instead of monthly ones? Will my SIPs do better?
There is no ideal date for an SIP. Changing your SIP dates would only work if the markets had a clear pattern that played out like clockwork every month. But we all know that market moves are a complete random walk. Splitting your SIPs into weekly instalments and trickling them into the fund in smaller doses doesn't have a big pay-off. Your intention in taking the SIP route is to avoid worrying about timing. So pick any date and just stick to it.

Is a bear market the right phase to start an SIP in equity funds for the long term?
It is always the right time to start an SIP in equity mutual funds. Buying stocks when the market is low and selling them when the market goes up may sound like a great idea, but it is almost impossible to do so - at least on a regular basis. That is why investors shouldn't concern themselves with market movements beyond a point. They should start and go on with their investments irrespective of the market conditions.

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