I am 29 and a new investor. I want to start monthly SIP for Rs 20,000. How should I go about it?

I am 29 and am a new investor. I want to start monthly SIP for Rs 20,000. I am willing to take high risk as I have long earning phase ahead and my retirement is very far. Since I am not yet married my goal is wealth creation. My time horizon is 25 years.  

Please suggest a suitable fund to start my SIP with amount for each fund. If I increase my SIP amount later on do I need to stop running SIP and start new one or start new SIP with new amount?  I do not want to exercise the option now. What happens to amount for old SIP? How can I transfer? Do I have to redeem and reinvest as lump sum on new sip or any other way? Can I transfer fund from one fund house to another?  What happens if I stop my SIP amount after 2 years and not cancel it on the portal? 

Reply by Balwant Jain, an investment and tax expert

Though you can take high risk and have long tenure of 25 years and can invest in small cap funds but as you are a new investor, I would suggest you divide your investments across different categories. I would suggest you divide the amount of Rs. 20,000 in four schemes and start the sip of  Rs 5,000 each in the following schemes 

UTI Nifty 50 Index Fund 

Parag Parekh Flexicap Fund  

Quant Midcap fund and 

Nippon Small cap fund 

In case you wish to increase the SIP later on, you do not have to stop the existing SIP. Though there are some fund houses which offer you the option to increase your SIP amount annually by the desired amount but as you do not want to do this at the initial stage,  you can start a new SIP of the additional amount and continue with the existing SIP. Or alternatively you can stop the old SIP and start the new sip of enhanced amount in the same folio number. 

As you will start the new SIP in the existing folio you need not redeem the old units. The units in respect of the old SIP will stay in the same folio along with the investment for new/additional SIP going there. So you do not have to do anything with the amount accumulated under the existing SIP. Please ensure that you start the new/additional SIP under the same folio and do not open a fresh folio. 

You can switch your existing investments in a scheme of a fund house to another scheme of the same fund house but you cannot directly shift your investments in one fund house to another fund house without routing the money through bank account. For shifting funds from one fund house to another fund house, you will have to first redeem the existing investments and make a fresh investment in the new fund house after the redemption proceeds are credited in your bank account. 

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If you stop your SIP after two years and you do not cancel your SIP either by submitting physical request or request it online, the SIP gets automatically cancelled after the SIP is returned three times generally. Please note that though the fund house may not penalise you for return of your SIP, your bank will charge you for returned SIP mandate. So, it is better in your interest to get the SIP cancelled proactively so as to avoid the bank charges. 

(Views expressed by the investment expert are his/her own. E-mail us your investment queries at askmoneytoday@intoday.com. We will get your queries answered by our panel of experts.)