Systematic Investment Plan-SIP

What is Systematic Investment Plan (SIP)

Systematic Investment Plan (SIP) is a planned approach to investments and an investment technique that allows you to provide for the future by investing small amounts of money in Mutual Fund schemes of your choice. It is just like the recurring deposit, every month on a specified date of your choice have to invest in mutual fund. SIP is a smart financial planning tool that helps you to create wealth, by investing small sums of money every month, over a period of time.

Minimum amount of SIP can be Rs. 500 or more sometime this will depend on the type of scheme in which you are investing.

Why SIP

Equity markets tend to be volatile in the short term, but have the potential to generate higher returns in the long term. Averaging out the cost of purchase, systematic investments inculcate the healthy habit of regular investing, making your money work harder with the power of compounding. SIP is an investment that helps you beat market volatility. In a SIP, your average cost of investing comes down and you go through all phases of the market - bull or bear - like a true winner.

Benefits of SIP

There are advantages to being a disciplined investor. Investing regularly via Systematic Investment Plans (SIP), even if these are small amounts, offers many benefits like:

1. Easy mode of investment-Disciplined approach to investment, it is a hassle-free mode of investment since you can issue standing instructions for the regular transfers of money into your SIPs.

2. Great financial tool to counter inflation.

3. No need to time the markets- There is no need to time the markets as you invest at predetermined intervals. This spares you from investing a lump sum amount at peak prices.

4. Benefit from volatility-by investing SIP we even reap profits from volatile markets.

5. Rupee cost averaging- Average out your cost of investment and hence reduce your risk, since you invest fixed sums at regular intervals, you pick up more units when the prices are low and less units when the prices are high. This brings down the average cost of your units.

6. Power of compounding-small investor can create hefty portfolio over the time so start early.

7. Inculcates the saving habit-by investing through SIP you can develop saving habits. On a regular basis you put aside affordable sums of money and without realising it, over the long run you could amass great wealth.

8.Tax benefits- By investing in tax saving mutual funds scheme we can even plan our taxes in better way 

Now I am closing by only saying this "Market Timing is a wicked idea. Don’t try it ever”