Systematic Investment Plan or commonly known as SIP is an investment plan (methodology) offered by mutual funds through which you can invest a small amount in mutual fund schemes at regular intervals, typically in equity mutual fund schemes. An SIP helps you to fill-in your investments in equity mutual fund schemes over a period of time.
SIPs tend to be passive investments, because once you put money in a mutual fund, you continue to stay invested in it regardless of how it performs. SIP averages your investment price over the investment duration and offers the best flexibility of choosing your own amount and frequency, making SIPs as an ideal investing prospect for any mutual fund investor. SIPs usually allow you to invest weekly, monthly, or quarterly.
Markets move up, down or sideward based on economic cycles. SIPs offer mutual fund investors the freedom from being on the constant look out for opportunities to enter or time the market. SIPs are executed automatically; you just have to make sure the funding account has enough money to cover your contributions. SIPs also allows you to use a small amount so you don’t feel the effects of a big lump sum amount being withdrawn all at once from your bank account. Through a steady SIPs, you can get started with your mutual funds investment with a small amount, It’s simple and the most suitable way of investing in mutual funds. SIPs also instil financial discipline making you invest a fixed amount consistently at regular intervals in mutual funds. If you invest for several years even with a small amount, you can build a sizable number of units over a period of time to achieve your financial goals.
When you invest regularly over a period irrespective of the market conditions, you would get more units when the market goes down and less units when the market goes up. This averages out the buying cost of your mutual fund units. SIPs can also be used as a means to take advantage of market swings by increasing your SIPs during bear markets or recessions. However, note that rupee cost averaging does not assure profit, nor does it protect one against investing losses in declining markets. It merely ensures disciplined and regular investment in stock markets, which aids you overcome the natural impulse to stop investing in a falling or a bear market or investing a lot, when markets are buoyant and speculative.
Each time you SIP the amount is invested, and units of the scheme (as per NAV) are allotted to you the mutual fund investor. SIPs are also a suitable means for salaried investors to consistently invest in mutual funds with each pay check. There are few different types of SIPs, Top-up SIPs allow mutual fund investors to increase the SIP amount periodically. Alert SIPs are another method of the regular systematic investment plan which sends an alert to the investor to buy more when the markets are down.
In the last few years; SIP investments in mutual funds have become one of the most popular tools for the younger generation lately which is generally investing in financial markets via mobile apps. To get the best out of your investments, it is very important to invest for the long-term, which means that you should start SIPs early in life, in order to maximize the end returns. So go ahead. start mutual fund investing through SIPs today!.
The information, analysis and opinions expressed herein are for education purposes only and are not intended to provide specific advice or recommendations. This material is not an offer, solicitation or recommendation to purchase any financial products or services. Always remember that all investments carry some level of risk, including the potential loss of principal invested.