SIP (Systematic Investment Plan) - Benefits and How It Works

 

SIP (Systematic Investment Plan) - Benefits and How It Works

What is SIP?
SIP stands for Systematic Investment Plan and is considered as the ideal way of investing in mutual funds in a regular manner. SIP is a method of investing a fixed amount at pre-defined intervals, e.g., every quarter, month, or week as per your convenience. It helps you to manage your risk better and build your wealth over a period of time.
By taking the SIP route to investments, the investor invests in a time-bound manner without worrying about the market dynamics and stands to benefit in the long-term due to average costing and power of compounding.

How does SIP work?
SIP works on the basis of periodic and consistent investments. This investment amount will get auto-debited from your bank account on the basis of standing instructions and the corresponding amount of mutual fund units you have chosen.

SIPs which are offered by SEBI registered mutual funds are managed by the team of professional fund managers for which you pay a nominal cost as per the respective mutual fund scheme.

Benefits of SIP:
• Flexibility: Investors can increase or decrease the amount of investment at any time.
• Investment Discipline: By investing regularly at fixed interval of time, helps you to achieve financial discipline and saving habit. Making it as important as any other expenses of the month.
• Low Investment Amount: Investors can even invest in SIP with as low amount as ₹500 at regular interval of time.
• Power of Compounding: In SIP, when you invest regularly for a long period of time, not only your principal amount but your returns also get invested over the period of time. Your money grows as you earn returns on returns and so on.
• Low Risk: SIP has lesser risk than lumpsum investing method as you invest for longer period of time in SIP.

Conclusion
SIP is a good method to invest with low risk and good returns. Also, it is suitable for small investors as well. Choose your SIP investment plan wisely before investing.

*Mutual Funds are subjected to market risks. Read all scheme related documents carefully.*


Also Read: What is Mutual Fund - Advantages and Disadvantages

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