SIP - Systematic Investment Plans
Investment Plan by its natural meaning is making investment in a systematic
manner, to generate funds for some future purpose. By systematic investment, it
means regular investment.
Investment Plans popularly called as SIPs are a methodology of
investment in mutual funds in small amounts at regular periodic
intervals instead of a one time lumpsum investment. A small amount of
money is invested on pre fixed dates into mutual fund selected by the investor.
is quite similar to Recurring Deposits of Banks. You can invest at
regular intervals (weekly/mothly/quarterly etc.) a fixed amount in the
selected mutual fund
scheme. Amount will automatically be debited to your bank account and
invested in the specified fund.
have multiple options about the time (frequency), amount, type of scheme etc.
Most commonly people use, SIP for monthly investment primarily in Equity Mutual
How does a Systematic Investment Plan-SIP work?
Lets understand the methodology with an example-
Benefits of Systematic Investment Plans-SIPs
you start an SIP of Rs. 500 monthly. Now every month Rs. 500 will be
debited to your bank account and invested in your chosen mutual fund.
Against this Rs. 500, every month you will be allotted units of the fund
at the days market price-NAV of the fund. So every month with your
monthly contribution additional units will be added at the days market
If market is high you may receive lesser units & when
markets are down more units will be added to your investment.
There are number of benefits of investment in Equity Mutual Fund through Systematic Investment Plan-
- Systematic, Regular & Disciplined Investment
of us tend to spend the money we have in our Bank Account. Though we
all desire to save but we postpone it for a later date. Here Systematic
Investment Plans come up as a saviour. As amount is invested
periodically on a regular basis it helps you in controlling your
expenditure and thereby inculcating the habit of savings.
- Rupee cost Averaging /Timing the Market is not required
- There is saying that no one can time the market.
However, individuals mostly attempt to time the market. Most of the
people are not able to invest in falling market. They wait to
catch the market at the bottom most level and at the end; they are not
able to invest at all. In SIP, investments are made at regular intervals
and hence it is beyond individual bias.
concept of investing a fixed sum at regular intervals is called Rupee
Cost Averaging. And SIPs are the best investment plans which take full
advantage of it.
- SIP in long run compounds your invested money and generates huge amounts.
- For example Rs.
1000 invested per month for 25 years in an SIP, if earns a moderate 15% compounded return,
will lead to a corpus of more than Rs. 25 Lacs after 25 years.
- In long run equity market generates return better
than other asset classes. Investing for Long term through SIP helps in
generating huge corpus.
Have a query or feedback!! Do write to us at email@example.com!!
Some Quick Links:
Log Term Capital Gain on sale/redemption of Shares/mutual Funds
Short Term Capital Gain on sale/redemption of Shares & Mutual Funds