How to Start SIP & How SIP works? With Real Life Experience | SIP for Beginners #Finance

Investing in stocks or mutual funds regularly is called SIP. With a live demo on how SIP works and how to start it, let’s see all the information about SIP in this CashNews.co. Not only that, you might have heard that… if we do SIP, we can grow ₹1 crore to ₹2 crores. We can

see such overhyped information online on social media. To check its real worth, let’s see a real-life example of whether there is any proof for it in this CashNews.co. Greetings! My name is Boosan, and you’re watching "color: #1a73e8; text-decoration: none;">Finance Boosan". First, let us understand why we should do SIP. Basically, instead of SIP, we could have named it RIP. SIP means Systematic Investment Plan. But we are not going to do anything systematically here. We will invest regularly in a

particular thing at a particular interval. It could be stocks, mutual funds, gold, small cases or anything. Investing in a particular thing once a week or once every 15 days is called SIP. SIP is not a plan or product. It is just an investment method. Many new investors have misunderstood it as a

product. Now, let’s understand the actual purpose of SIP. Everyone thinks of investing money and saving more. Even if everyone thinks like that, many people CAN’T grow money practically. From my interaction with many people. they say… " I get salary every month. " "

I don’t know how it’s being spent. " " I want to save some amount every month, but I don’t have money left. " This is a common complaint. To avoid this, we can set a date like the 5th or 10th of every month, and allow auto-debit from our bank account for investing.

For doing that, SIP is a proper route. Common people refer to SIP as investing in Equity-based mutual funds every month. Here, Equity refers to stock-based Investments. To know about mutual funds for the first time, it is an instrument that holds

many stocks together. Let’s take an example. Let’s look at an old fund. In September 2010, Nippon India Small Cap Fund was started. If you want to know more about this mutual fund, you can search for Nippon India Small Cap Fund on Google. We can click on a link from there. If we open

this, we can see a number called Fund Size or AUM. It is referred to as ₹45,000 crores. What it means is that… many investors like you and me have invested their money in this fund every month. AUM and Fund Size indicates the total value of the fund. We can see the stocks that Nippon India

Small Cap Fund holds. They hold around 200 stocks in this fund. The fund manager invests the ₹45,000 crores in these stocks. We can see how much percentage is allocated for each stock. The fund manager calculates the percentage for each stock in this fund. The fund manager periodically decides

which stock to retain or remove to invest in this fund. The performance of this mutual fund is based on the performance of these stocks. Basically, the returns of the stocks are very volatile. The returns will fluctuate daily. Out of these 200 stocks, some might rise and some might fall. The mutual

fund reflects the performance of every stock combined. To buy a stock, we have to pay a price. The price of each mutual fund is called the Net Asset Value (NAV). The NAV of this fund is around ₹170. If you invest ₹1700 , you are buying 10 units of this fund. When you buy 10 units of this fund,

it is difficult for new investors to decide what to buy and how to buy. If you invest a certain amount in this fund, you will be allocated with units equivalent to that amount. This is how it’s bought. There are many options to invest and buy in mutual funds. One of the popular options is to

go to the distributors. When you ask those agents about investing, they will suggest you mutual funds and help you open an account to invest. Another option is to go to mutual fund platforms like Zerodha, Groww, Upstox, Kuvera, Paytm, etc. This is the easiest and cost-effective route. I have been

using Zerodha for the past 7-8 years. I have been investing in mutual funds via Zerodha only. To open a new account, you need to go to their website and provide your basic info like phone number, PAN, Aadhaar, etc. After completing the KYC and photo verification, they will send you the ID and

password. Using that, we can invest via their website or app. Zerodha has "Kite" app used for investing in stocks and "coin" app for investing in mutual funds. You can also use any platforms like … Groww, Upstox, Paytm, etc. to open an account and invest. The process of

opening an account is straightforward. Let’s see how to start an SIP demo in a while. Before that, a very important question. " How do we trust these apps? " " If they close Zerodha, Groww, Upstox, Paytm, etc., what will happen to our investment? " Everyone has this common

question. When we invest in mutual funds through these apps, our holdings will be saved in our Demat account. The Demat account has NO dependency with the Brokerage platform. Even if the Brokerage platform is closed, our holdings will be safe in the Demat account.

Even if Zerodha, Groww, Upstox, etc.is closed, we can see our holdings in the fund house using PAN. We can access, invest, and withdraw. So, even if these are closed, our funds will be safe. For more details, check the CashNews.co link above or in the description. After opening an account, you can

search for the mutual fund to invest in their app or website. For example, let’s look at the Parag Parikh FlexiCap fund. Let’s decode all the information you see here. First, there is Parag Parikh FlexiCap fund. Parag Parikh is a fund house or AMC. It is an Asset

Management company. This company owns this mutual fund. Below that, there is the word Direct. Every fund will be divided into Direct and Regular. Usually, if we are going to buy through a mutual fund agent, distributor, or bank, they will only give us regular plans. The expense ratio for

these Regular plans and Direct plans will be different. The expense ratio for Regular plans will be higher. It’s higher because the distributor or agent will help us sell the funds. So, that small portion will be commissioned to them. If you buy directly, the expense ratio will be lower. For

Parag Parikh FlexiCap fund, We can see that the NAV value of Direct and Regular fund have changed. The NAV is higher for the Direct plan and lower for the Regular plan. In fact, when this fund was started, the NAV of both the funds was at ₹10. When this fund was started, if we had invested ₹10

lakhs in the Direct plan and ₹10 lakhs in the Regular plan, the Direct plan would have been ₹77 lakhs today, and the Regular plan would have been only ₹71 lakhs. The charges would have been ₹6 lakhs in the regular plan. So, it is very important to invest in a mutual fund, confirming that it

is a Direct plan. Or if you invest through an agent, distributor, or bank you will get only Regular plans. So, it is very important to keep in mind about these charges. Next to the Direct plan, there is an option called Growth. Now, we are going to choose a fund. If we search for Parag Parikh, we

will see two categories – Growth and IDCW. IDCW refers to Income Distribution. Earlier, it was called Dividend Category. That is, as the fund grows at regular intervals, Profits will be deposited in our bank account like a regular Income.

But, in Growth, it will be reinvested and let to grow. So, if we are looking for a mutual fund or SIP for Wealth Building, we should always choose the Growth option. If you are looking for a regular Income, or if you are looking for a Cash Flow

after retiring, then you can opt for IDCW. But, the problem with IDCW is… that the Income will be taxable. Means, you need to pay tax for that Income. You can view the NAV value below the first row. The NAV value indicates the current price of the fund. This

changes daily. But there is no change in the weekends. Similarly, each fund has a CAGR. CAGR indicates the returns for the year. Here, we can see 1 year, 2 years, 3 years, 5 years CAGR. Many new investors after seeing the CAGR value only for 1 year, 3 years, 5 years, ask me if they can’t

invest more than 5 years. Firstly, what they show here is just a reference data. We can do SIP and investment as long as we want. Here, we don’t choose any fixed years. They have shown the returns of the fund for each date of every year. When we say 3 years CAGR, they have compared the value

in May before 3 years with the value in current May, calculated it as CAGR and indicated it here. What we see here is point to point returns. We can see from the price chart that it is volatile. If the price of the fund was low on a particular date, and if it was high today, the CAGR will be high.

Whereas if its NAV was high and compared to today price, the CAGR value will differ. So, based on the point to point data alone, we can’t conclusively say whether the fund performed well or not. So, to evaluate the correct performance of a fund, we need to see its rolling returns or SIP

returns. Below, we can see the charges of the fund. There are two important charges. 1. Expense ratio 2. Exit load. Expense ratio is the fee from the investors to manage the fund. It will be automatically adjusted daily in the NAV. The returns shown here are calculated after deducting the expense

ratio. If a mutual fund has given good returns, we don’t need to worry about its expense ratio. Generally, if the expense ratio is below 1%, it is a good fund. For Index funds, we can also get an expense ratio of 0.5 or 0.25. Many new investors decide based on the expense ratio alone. We

should not decide based on that alone. We should see the stocks listed in the mutual fund, past and present performances of the fund manager, diversification of stocks, whether consistent good returns. We have to look at such parameters and then decide. Expense ratio is a secondary metric only.

Next, there is another charge called Exit load. If we want to invest and sell it within a particular period, for withdrawing it, we have to pay the exit load. This fund has a 2% exit load. If we sell it within the first 1 year of buying, then we have to pay 2% as a fee. If we sell it within 1-2

years, then we have to pay some % as an exit load. But after 730 days, we don’t have to pay any exit load for selling. Investors don’t have to worry about exit load. Because we have to aim for Equity Investments to last for 3-5 years. Now, to invest in

this mutual fund, there are 2 options. One is buy and the other is SIP. When we say buy, it’s investing an amount one-time manually from bank account. That is what buy option is for. When we say SIP, we can configure it monthly, weekly, or once in 15 days. We have to fill in the amount we

want to invest in the beginning and monthly. After filling, we have to select the frequency as weekly or monthly, and also the date to invest. In the above option, they would have asked if it is AMC SIP or Non-AMC SIP. Usually, Non-AMC SIP is flexible. We can pass, delete, and edit anytime in

Non-AMC SIP. So selecting Non-AMC SIP, let’s go to the next step. Here, we can create a bank mandate. If we want money to automatically get deducted from our bank account, we can configure it here. Then, they will withdraw the specified amount on the specified date. If you don’t want to

automatically deduct money from the bank, you will get notified on the particular date. Then, you can go in and invest through manual bank transaction. They will ask if we have to set an automatic step-up. They will ask if we have to raise the amount year by year. If we want to increase it, we can

configure it. If not, we can leave it free. After doing all these, SIP order will be placed automatically. Then, SIP will be executed on that particular date as per our frequency. After 2-3 days of SIP execution, we can see our mutual funds in our holdings. So far, we have seen SIP, how it works,

and what we need to know about it through a live demo. But, let’s see a real-life example to see if it really works. I heard about this experience 7-8 months ago. He had shared his experience of saving ₹10 crores in 25 years. First, let’s see his background. He was born in a very

normal poor family. His parents didn’t have much education. They studied till 7th or 8th standard. But, they somehow made him study engineering. In fact, his family was struggling to pay the fees. After studying like that, he got a job in an IT company in 1998. It wasn’t a big IT

company. He got a job in a normal service-based company. But, he started saving from the first month of his job itself. He started saving with normal instruments like FD, bank, etc. After 5 years, he entered the concept of Mutual Fund SIP. In fact, he started is SIP with just ₹1000 . Looking

back, he might have invested from a lesser amount. From that point, he continued SIP for 18 years without skipping even a month. Interestingly, it took him 9.25 years to earn ₹1 crore. He earned ₹9 crores in the next 9 years. But that doesn’t mean he earned ₹1 crore every year.

According to the volatility of the market, his investment might have went up and down sometimes. Overall, he earned ₹10 crores in 18 years through SIP. Apart from this, he also owns other Assets like Real Estate and Gold. We should note that his family background

is very normal. He didn’t go for a big job. He went to a normal service company. After that, he switched jobs 3 times. Also, he didn’t take a decision to buy Real Estate or property immediately. If he had taken such decisions, he would have trapped in

Loans. His Investments would not have continued. He built a SIP corpus of 10 crores at the age of 46. What we should take from his experience is his discipline and consistency. He continued SIP for 18 years without skipping even a month. That’s why he earned

these returns. That journey won’t be easy. Because in 2000, 2008, and 2020, the market had gone down by 30% – 50%. If you have a big corpus, when it falls by 30% – 50%, our mind and emotions should be very strong to hold it. Apart from that, he didn’t pick a proper fund

based on its performance. He just did 2 things alone. He kept investing with discipline for long term. Not only that, we can’t control the returns. But we control how much we can invest. To control it, we should increase our Income. So, he worked hard to increase his

Income. As he kept increasing his Income, he kept stepping up his Investments. He has shared this experience as a article in FreeFincal. Everyone should read this article. His experience and mistakes are also highlighted in this article. If you ask

me how to trust a random article, basically, you can track a mutual fund that has been around for 20-25 years. From its starting NAV to this point, see what returns it has given. Also, FreeFincel is run by Dr. Pattabiraman, who is a pioneer in personal

style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance. In fact, his credibility is that he is a doctorate and a professor in IIT. His calculators are listed in SEBI’s official website. So, the information in this article is a positive and a credible

experience. Check out the link of the article in the description. It is evident that it is difficult to earn the first ₹1 crore. Check out this CashNews.co to know how to earn that ₹1 crore. If you find the information in this CashNews.co useful, kindly like this CashNews.co : ) If you

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