A systematic investment plan or SIP is a hassle-free mode for investing money in mutual funds. This investment plan allows one to invest through a certain predetermined amount at regular intervals which can either be weekly, monthly, quarterly etc. SIP is one investment that inculcates the habit of saving for the future.
How Does Sip Work?
SIP is a secure investment plan. The money is automatically debited from the bank account and is invested into a particular mutual fund scheme. The investors are allocated the number of units based on an ongoing market rate for the day. With each investment by the investor additional schemes are being purchased at the market rate and added to the accounts.
When investors invest in SIPs, they are benefitted from rupee-cost averaging. Rupee cost averaging is a boon to regular investors as their money fetches more units when the price is low and when the price is high. It makes it easier for the investors to guess the perfect time to invest in the market. Rupee-cost averaging allows investors to achieve the lower average cost per unit during the volatile period.
WHAT ARE THE BENEFITS ASSOCIATED WITH SIP?
As already mentioned SIPs are a beneficial investment plan. Besides developing the habit for savings here are some other benefits of SIPs:
- Flexibility:
The SIP investment plan can be discontinued anytime by the investors. There is no rule or compulsion as such where they have to continue with the plans. - Long-Term Gains:
Due to features like rupee-cost averaging SIPs have the potential to deliver decent returns over a long investment horizon. - Convenience:
SIP is a hassle-free mode of investment. It is very easy to issue. Investors have to issue an instruction to the bank to facilitate automatic debit from their bank accounts.
Hence now you know what exactly is systematic investment plan, and that it is among the best mode of investments.
