What is SIP? (Systematic Investment Plan) and its Explanation Simplified

Building wealth is for your retirement or a dream holiday needs proper planning and discipline. A systematic investment plan (SIP) lets you do that. When you opt for a systematic investment plan you can invest regularly in a mutual fund scheme. This needs to be done in a fixed amount at regular time periods. You can choose the time period at which you wish to invest in the mutual fund scheme. This could be as low as a day or as high as quarterly.

The benefit of investing in a mutual fund scheme, SIP investment plans lets you average out your investment. Thus, you benefit from the compounding power. The power is great because it averages out the cost of your investments and helps you earn money over the years. So basically, when you invest through the SIP, for beginners, it is important that you stay invested in the market for long. It saves you from the trouble of timing the market. However, what you need to take care of is you stay invested in the market for long.

The SIP plan thus, helps you achieve your dreams. The best part about investing in SIP is that you do not need a lump sum to start investing. You can start with a small amount.

The Working of the SIP- What Is SIP?

When you invest in a SIP scheme, you are basically investing your money in a mutual fund scheme. You can buy some units of the mutual fund at a given date each month or in regular intervals and this instils a saving discipline in the investor. The main advantage of investing in a SIP is that the market participant will never miss out the rally. This is because he never needs to time the market. The investor will be investing in the market continuously. The benefit of regularly investing into the SIP is that the investor ensures that he is invested when the market is at its peak as well as in the lows and he is able to make use of the times that is in normal cases difficult to predict.

How Does the Investor Invest in the SIP Plan?

The investor can invest a fixed amount at a predetermined interval in the SIP plan. This is based on how comfortable the investor is. The investor can decide on the SIP and start the plan online or by visiting the fund house. Once the SIP gets started the amount gets debited from the investors account each month or on the subsequent dates. For this, the investor will have to give a standing instruction or post-dated cheques.

You, thus, have to do the formalities just once and the remaining is taken care of. Make sure that the mutual fund SIP is a plan for those who want to stay invested in the market for long.

The Investment Strategy that Works

SIP or systematic investment plan is an investment strategy that is offered by the fund house. It is a convenient way to build a surplus by investing small amounts of money into mutual funds. The investment can be done in the amount that the investor chooses. This way the retail investor can participate in the growth of the stock market conveniently.

Investing small amounts of money regularly is convenient for the investor as it does not pinch his pocket. The investor is also able to benefit from the rupee cost averaging.

Key Reasons Why One Should Choose To Invest Through a SIP- Systematic Investment Plan Meaning:

It is the time in the market that matters and not the timing in the market

When investing through a SIP it is important that you stay in the market for long so that you are able to benefit from the complete uptrend and the down move of the stock market. The timing is; however, not of concern because you are buying regular units in the market and thus your investment ultimately averages out.

The cost of purchase is low

The market SIP meaning moves in cycles and when you invest through SIP the average purchasing cost is lower. This averages out your investment and is beneficial for you.

The power of compounding

You can see your wealth grow systematic investment plan India a lot because of the power of compounding. When you invest in the equities for a longer time period then you are able to benefit from the different cycles of the market.

Highly affordable

The SIP meaning in stock market lets the investor invest from a very low amount. You, thus, do not need a lump sum amount to start investing in the market. It takes very minimal amount to start a SIP fund.