Systematic Investment Plan

SIP works on the principal of regular investing. It is a method of investing a fixed sum, regularly, in a mutual fund scheme. The investor instructs mutual fund to invest a fixed amount (weekly, monthly, quarterly, etc.) and the money gets automatically transferred from your bank account and invested in the mutual fund of your choice. The investor is allocated a certain number of units based on the ongoing market rate (called NAV or net asset value) for the day.

 

Advantages/ Benefits

No need to time the market
SIP gives you an advantage of not worrying about the market fluctuations. In timing the market, an investor can miss a large rally or may enter the markets at the wrong time when either the valuations have peaked or markets are on the verge of declining. Instead of timing the market and investing lumpsum, SIP allows you to invest every month/quarter ensuring that one remains invested at both highs and lows of the market. Hence, units are bought at different rates and investors benefit from Rupee-Cost Averaging and the Power of Compounding.

It brings Discipline to Investing
While most first time investors find the idea of investing on monthly basis difficult to adapt, they appreciate it once they get accustomed to the habit of savings. Over the years, they reap benefits of rupee cost averaging and power of compounding.

It is as Convenient as a Bank RD
The money gets automatically transferred from your bank account and invested in the mutual fund, once a standing instruction is given for a period. A SIP can be discontinued by an investor at any time. Moreover, one can increase/decrease the SIP amount whenever needed.

Someone is sitting in the shade today because someone planted a tree a long time ago.

Warren Buffett

 

 

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