If you have heard about mutual funds , you must have heard about Systematic Investment Plan (SIP).
So what is this systematic investment plan?
Systematic Investment Plan (SIP) is an investment vehicle offered by mutual funds to investors, allowing them to invest into mutual funds periodically on a specific date for a specific amount.
For example, you can set up a SIP in a particular mutual fund scheme for INR 2000/month on 15th of every month. On 15th of every month, INR 2000 will be debited from your account and certain units of mutual fund will be allocated to you.
The number of units allocated depend on the basis of prevailing Net Asset Value (NAV) of the mutual fund scheme.
The frequency can be set to weekly, monthly or quarterly.
Why SIP ?
The SIP strategy helps avoid timing the markets by Rupee Cost Averaging. As the investor gets more units when the price is low and less units when the price is high, in the long run the average cost per unit is supposed to be lower.
SIP encourages disciplined investment. SIPs are flexible, the investors may stop investing a plan anytime, or may choose to increase or decrease the investment amount.
SIP mode is usually recommended to retail investors who don’t have the resources to track huge data on their own.
Also see : http://www.oracleinvestor.com/mutual-funds/mutual-funds-for-beginners/
How to set up SIP
- You can set up SIP in a MF scheme on Netbanking provided by your bank.
- You can also set up SIP by visIting the website of respective mutual fund/AMC.
- You can also issue cheques to mutual fund scheme, however, this is quite an old method.
SIP Vs LUMPSUM
- Lumpsum mode seeks investment in one go, whereas in SIP mode the investment is scattered over specific dates.
- Lumpsum investment can give you better returns ONLY if you manage to time the market, Which is a very difficult thing to do.
- Lumpsum mode is suggested for active investors while SIP route is the best for passive investors.
- SIP route is more relaxed, disciplined mode of investing.
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