What is the full form of SIP?
The full form of SIP is the Systematic Investment Plan. It is an investment strategy in which, at pre-defined regular intervals, you invest a fixed sum in mutual funds. In the long run, it lets you build substantial wealth by spending small amounts of money.
In easy sentences, it is a calculated investment strategy that helps you build future wealth & inculcate a saving practice. A one-time investment, commonly known as a lump sum investment, is another form of spending in a mutual fund.
How do SIP works?
- The idea of periodic investments is observed in SIP.
- The amount to be invested is regularly auto-debited from your bank account.
- You don’t need to time the market in the SIP and it purchases units on a particular date every month with the amount deducted from your account.
- That day, if the unit price is high, low units will be purchased and if the value is low, more units of the same quantity will be purchased.
Characteristics of SIP
- SIPs enable people to invest at any time and withdraw money.
- It is without a specified tenure. It can be discontinued in between and can be continued by submitting a request with the mutual fund agency following the term.
- During or after the SIP term, partial or complete withdrawal is possible.
- During the SIP tenure, the SIP amount may be raised or lowered.
The significant point regarding SIP
- It functions as an automated market timing mechanism, such as purchasing more units when the price is low and purchasing less units whenever the price is high.
- The overall cost of purchasing the units is decreased and the returns are increased over its ups and downs.
- Also, it enables you to invest in a mutual fund system of your preference.
- These mutual fund schemes operate in stocks businesses in several industries, such as IT, hotels, pharmaceutical products, manufacturing, and so on.
Benefits of SIP
- People don’t need to calculate how much to spend, when and how to invest and they don’t have to track the market constantly.
- Users get the advantage of averaging rupee prices, and efficient investment technique, e.g. a fixed amount is invested each month so that when the price is low, more units are purchased and less units whenever the price is too high.
- Over the years, a tiny sum of money invested regularly expands to a large sum consisting of your investments and returns.
- It encourages you to begin saving soon. The earlier you start investing, the better it will be for the growth of wealth.