The Systematic Investment Plan (SIP) is a simple and time honored investment strategy for accumulation of wealth in a disciplined manner over long term period. The plan aims at a better future for its investors as an SIP investor gets good rate of returns compared to a one time investor.
What is Systematic Investment Plan
A specific amount should be invested for a continuous period at regular intervals under this plan.
SIP (Systematic Investment Plan) is exactly like a recurring deposit.Its a form of investment in which a fixed sum regularly invested in a mutual fund.
SIP allows the investor to buy units on a given date every month. The amount has to be decideor only subject to minimum threshold of the mutual fund scheme.
While the investor's investment remains the same, more number of units can be bought in a declining market and less number of units in a rising market.
The investor automatically participates in the market swings once the option for SIP is made.
SIP ensures rupee cost averaging as consistent investment ensures that average cost per unit fits in the lower range of average market price. An investor can either give post dated cheques or ECS instruction and the investment will be made regularly in the mutual fund desired for the required amount. SIP generally starts at minimum amounts of Rs.500/- per month and.
SIP investor
It is easy to become a systematic investor. One needs to plan the saving effectively and set aside some amount of money every month for investment purposes in a fund that is ideally a diversified equity fund or balanced fund. Post dated cheques can be given to the fund house. The investor is at liberty to exit from the scheme depending on the market conditions.
Benefits of Systematic Investment Plan
Power of compounding: The power of compounding underlines the essence of making money work if only invested at an early age. The longer one delays in investing, the greater the financial burden to meet desired goals. Saving a small sum of money regularly at an early age makes money work with greater power of compounding with significant impact on wealth accumulation.
Rupee cost averaging: Timing the market consistency is a almost impossible task for a common man. Rupee cost averaging is an automatic market timing mechanism that eliminates the need to time one's investments. Here one need not worry about where stock markets and interest rate are headed as investment of a regular sum is done at regular intervals; with fewer units being bought in when market is high and and more units when markets are low. Although SIP does not guarantee profit, it can go a long way in minimizing the effects of investing in volatile markets. However when we. invest in SIP, since we buy at all levels, in 5 years or more duration it has always exceeded in most form of investment
Convenience: SIP can be operated by simply providing post dated cheques or with ECS. The cheques can be banked on the specified dates and the units credited into the investor's account. The SIP facility is available in the Income Fund, Monthly Income Plan, Balanced Fund, Index Fund, Growth Fund, Equity fund and Tax Savings Fund.
SIP features
Disciplined investing is vital to earning good returns over a longer time frame. Investors are saved the bother of identifying the ideal entry and exit points from volatile markets. SIP options such as equity, debt and balanced schemes offer a range of investment plans. While there is no entry load on SIP, investors face an exit load if the units are redeemed within a stipulated time frame. The success of your SIP hinges on the performance of your selected scheme.
Investing in mutual funds through SIP gives you to benefit even when markets are Volatile. A recent article in The Economic Times says that while top equity diversified funds have returned 16-18% in three years, SIP investors have earned returns in the range of 25-28% (investing into the same funds) during the same period. With most fund houses allowing investors to invest amounts as low as Rs. 100 per month through SIP, even those with small investible surplus can begin their mutual fund journey.
One can simply relax if investing in SIP and need not follow the markets as already by paying small su monthly and outsourcing the department of investing, following as well as analysing the marketys ny sharing a very small proportion of their funds i.e. around 2.25% per annum of corpus. Hence it makes sense to invest in Mutual fund SIP's
