What is SIP (Systematic Investment Plan)?
A Systematic Investment Plan or SIP is a smart and uncomplicated way to invest money in mutual funds. SIP allows you to invest a predetermined amount at a regular interval (weekly, monthly, quarterly, etc.). A SIP is a planned approach to investments and helps you instill the habit of saving and accumulating wealth for the future.
SIP works as…
A SIP is a flexible and easy investment plan. Your money is automatically charged from your bank account and invested in a specific mutual fund plan. A certain number of units is assigned based on the current market rate (called NAV or net asset value) of the day.
Each time you invest money, the additional units in the scheme are bought at the market rate and added to your account. Therefore, units are purchased at different rates and investors benefit from the Average Cost Rupees and the Power of Compounding.
Average cost of rupees
With volatile markets, most investors remain skeptical about the best time to invest and try to “time” their entry into the market. The average cost of rupees allows you to choose not to participate in the guessing game. As you are a regular investor, your money gets more units when the price is low and less when the price is high. During the volatile period, it may allow you to achieve a lower average cost per unit.
Power of Money composition
Albert Einstein once said, “Compound interest is the eighth wonder of the world. He who understands it, earns it… he who doesn’t… pays it.”
The rule to capitalize is simple: the sooner you start to invest, the longer your money will have to grow.
Here the simple earning of Sip Example…
Benefits of SIP:
Disciplinary savings – discipline is the key to a successful investment. When you invest through SIP, you commit to save regularly. Every investment is a step towards achieving your financial goals.
Flexibility – although it is advisable to continue SIP investments with a long-term perspective, there is no compulsion. Investors can discontinue the plan at any time. You can also increase / decrease the amount that is invested.
Long-term gains – due to the average cost of rupees and the power to capitalize the SIP, they have the potential to offer attractive returns over a long investment horizon.
Convenience – SIP is an investment mode without problems. You can issue permanent instructions to your bank to facilitate automatic debits from your bank account.