SIP or Systematic Investment Plan is one of the most commonly used terms of Mutual Funds. SIP is basically a way or method of investing in mutual funds, in which a particular amount is invested in a mutual fund scheme as per the investor’s chosen amount and frequency.
This is a great option for small investors to regularly invest in mutual funds. Many mutual funds now allow monthly SIPs as small as INR 100.
Some features of SIP are:
a) Automated process – SIPs can be created for multiple funds by linking the investment account with the Bank account.
b) The regular fixed SIP amount buys units at the applicable Net Asset Value or NAV.
c) SIP brings Rupee Cost averaging into play which ensures buying more units when markets are down and vice versa.
Some of the benefits of SIP investing are:
1 Disciplined Investing- SIP brings continuity and inculcates a habit of regular contribution, as per the chosen frequency.
2 Averaging – Averaging or rupee cost averaging is a simple concept which is a unique feature of SIP. It ensures that scheme units are being purchased regularly irrespective of the market levels. This results in cost averaging and managing volatility effectively.
3 Goal alignment – A major benefit of investing through SIPs is that the investments and frequency can be aligned with both long term as well as short term goals of the investor.
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