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 is similar to a regular saving scheme like a recurring deposit. It is a method of investing a fixed sum regularly in a mutual fund.
* SIP allows the investor to buy units on a given date every month. The investor decides the amount and also 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 averaging of rupee cost 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.1000/- per month and upper limit for using an ECS is Rs.25000/- per instruction. For instance, if one wishes to invest Rs.1, 00,000/- per month, then they need to do it on four different dates.
Systematic Investment Plan is a feature specifically designed for those who are interested in investing periodically rather than making a lump sump investment. It is just like a recurring deposit with the post office or bank where you put in a small amount every month. The difference here is that the amount is invested in a mutual fund.
A Systematic Investment Plan (SIP) is a vehicle offered by mutual funds to help you save regularly.
The difference here is that the amount is invested in a mutual fund.
The minimum amount to be invested can be as small as Rs 100 and the frequency of investment is usually monthly or quarterly.
Please be clear that a systematic investment plan is not a tool that helps improve your investment returns.
It makes you disciplined in your savings. Every month you are forced to keep aside a fixed amount. This could either be debited directly from your account or you could give the mutual fund post-dated cheques.
As you see above, it helps you make money over the long term. Since you get more units when the NAV drops and fewer when it rises, the cost averages out over time. So you tide over all the ups and downs of the market without any drastic losses.
Also, a number of mutual funds do not charge an entry load if you opt for an SIP. This fee is a percentage of the amount you are investing. And if you do not exit (sell your units) within a year of buying the units, you do not have to pay an exit load (same as an entry load, except this is charged when you sell your units).
If, however, you do sell your units within a year, you would be charged an exit load. So it pays to stay invested for the long-run.
The best way to enter a mutual fund is via an SIP. But to get the benefit of an SIP, think of at least a three-year time frame when you won’t touch your money.
Of course you would lose money if your units lost value over time
The primary objective of a SIP is to enable investors to clearly define an investment goal, and then to help them reach it through systematic investment in select equity-oriented mutual fund schemes that have a track record of consistent good performance.Most of the mutual funds offer this facility. The real value lies in the portfolio of the fund. Almost all schemes have the facility of steady investment plan.
In simple words Systematic investment plan, is a simple, time-honored strategy designed to help investors accumulate wealth in a systematic manner over the long-term. Systematic Investment Plan is one of the most effective way of investing in market especially in a market of volatile nature .
The best way to enter a mutual fund is through a Systematic Investment Plan. But to get the benefit of an SIP, think of minimum three-year time frame when you won’t touch your money. Small but regular investments go a long way in creating wealth over time.