What is SIP

What is SIP?

A systematic investment plan or SIP, is a mode of investment in the mutual funds where you invest a certain pre-determined amount at regular intervals which is automatically processed through one of your bank accounts. SIP offers great benefits to those who are ignorant about the current market scenario but wish to get involved with whatever savings they have. SIP’s promotes saving and help in wealth formation and growth in the future.

HOW SIP’s are beneficial?

SIP’s are flexible and easy and follow automatic route to channelize your savings into one of the Mutual Fund schemes chosen by you. The money to be invested is debited from your bank account and a person is allocated a certain number of units at the ongoing market rate i.e. the NAV for the day. Every time the purchased units are bought at the market rates and are added to your account. This results in the purchase being at different rates every time and an investor benefits from rupee cost averaging in addition to the power of compounding.

Rupee cost averaging: it is the method of remaining immune to the volatile market and is a great benefit to an SIP Scheme. As your investments are regular and periodical, your money fetches lesser units when market rates are high and fetch a greater number when prices are low. This ensure lower average cost per unit during volatile periods in the market making your portfolio strong and immune to the ups and downs of the market.

Power of compounding: Albert Einstein once said, "Compound interest is the eighth wonder of the world. He who understands it, earns it... he who doesn't... pays it."  Compounding rule is a simple rule that says that the early birds benefit more from investments as the sooner one starts investing, the more time the money has, to grow. To read more about the power of compounding, click here.

Visible Benefits of starting a SIP:

•       Disciplined Savings: SIP promotes disciplined savings in one’s life. A person starting a SIP is committed to save a fixed amount regularly. And discipline is the key to success, be it in life or in investments.

•       Flexibility: There is never a compulsion to continue a SIP for long run and one can increase or decrease the amount invested periodically, as per his/her convenience. So, SIP offers convenience to investors who can withdraw from the scheme whenever they wish. However, it is always advisable to invest in a SIP scheme for long term so as to reap the benefits of compounding.

•       Long-term Gains: As Rupee Cost averaging and the power of compounding applies to a SIP scheme, it promotes long term gains  and deliver healthy returns over long period of time.

•       Convenience: it is one of the most convenient forms of investments as the amount is directly debited from your bank automatically and you remain assured about returns in the long run without actively worrying about the market conditions.