Systematic Investment Plan
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Systematic Investment Plan
SIP – Systematic Investment Plan
Systematic Investment Plan (SIP) is a method of regular investment in mutual funds wherein an investor invests a fixed amount at fixed intervals in his selected scheme. SIP investment plan is about regular and disciplined investment investing over time rather than one-time investment resulting in a averaging of cost of purchase over time.
How does SIP work?
In SIP plans, the amount is automatically debited from your bank account through ECS/ACH registration and gets invested in the mutual funds that have been selected on the predetermined date and time interval.
With every investment through SIP plan additional units are added to your account at the current NAV. This overtime more units get accumulated and the returns also become larger.
The investor is at liberty to book his profits from time to time or let it compound for a long period for better growth.
When to invest in a SIP?
SIP method is wonderful tool to accumulate wealth over long period of time. the investments can be started anytime in a scheme which suits his goals and risk appetite. Earlier starters in SIP investments have an advantage of building a bigger corpus through compounding returns Hence one should start a SIP investment plan at the earliest.
Types of Systematic Investment Plan (SIP)
Below are the types of Systematic Investment Plans:
Top-up SIP
This method allows you to increase your SIP investment amount periodically giving you the convenience of investing a bigger sum with the increase in your future income levels. This has a very positive effect on the amount accumulated over time.
Flexible SIP
This method of SIP plan carries flexibility of amount you want to invest. The investor is at the liberty to increase or decrease the amount to be invested as per his own income level and preferences.
Perpetual SIP
This method of SIP Plan has maturity date for mandate, the investments carries out till it is cancelled or modified by the investor. However the investor is at the liberty to take out his money when desired.
Benefits of investing in SIP
There are several benefits of investing in SIP over Lumpsum. Some of them are listed below-
- Makes you a disciplined investor: SIP makes the investor disciplined in the way his income is utilized. The SIP gets debited from his account periodically as per his discretion. This way the client knows the amount he is going to save out of his total income every month, thus making him a disciplined in expenses. With SIP since the money gets auto-deducted from your account you can sit back and relax. Small contribution regularly induces discipline, which helps create bigger accumulations over time.
- The rupee cost averaging factor: With SIP comes the advantage of rupee cost averaging. Those investors who don’t have knowledge of stock market movements but still want to reap benefits of stock market, SIP is the best way to invest. The fixed amount you invest by means of SIP averages out the cost of purchase Through SIP you buy more units when the market is low (NAV is lower) and buy lesser units when the markets are high (NAV is higher), lowering down your average cost per unit.
- Power Of Compounding: SIP is a disciplined way of investing and ensures you constantly investing in the scheme, The automation through ECS /ACH makes sure you are regularly making investments. These small contributions over long term have compounding effect to make your accumulations to a higher level.
To see how much your money grows in 20 years if you contribute 1000 Rs a month, assuming average returns of 10%. The total amount grows to be Rs 7,18,259 due to the compounding effect. You may use our mobile app “techdynamic” to calculate the future values for SIP. It is available on google play store and apple play store.