SIP-Systematic Investment Plan is a method of investing a fixed sum, regularly, in a mutual fund scheme. SIP allows one to buy units on a given date each month, so that one can implement a saving or investment plan for themselves. The biggest advantage of SIP is that one need not time the market. Rather than timing the market, investing every month will ensure that one is invested at the high and the low, and make the best out of an opportunity that could be tough to predict in advance.
An investor can invest a pre-determined fixed amount in a scheme every month or quarterly, depending on his convenience through post-dated cheques or through ECS (auto-debit) facility. Investors need to fill up an Application form and SIP mandate form on which they need to indicate their choice for the SIP date (on which the investment will be made). Subsequent SIP will be auto-debited through a standing instruction given or post-dated cheques. The amount is invested at the closing Net Asset Value (NAV) of the date of realization of the cheque.
Systematic Investment Plan is one of the most disciplined approach to investments in mutual funds. Other than being a disciplined approach to investments, SIP also has its own advantages. Two of which are – Rupee-Cost Averaging and Power of Compounding.
Instead of trying to time the market, by investing on a regular basis, the investor benefits from the rupee-cost averaging factor. As the investments are done over different market cycles, the investor benefits from the market volatility by getting to buy more units of the same fund when the markets are low and buying lesser when the prices are higher.
POWER OF COMPOUNDING
Compound interest is said to be the eighth wonder of the world by noted scientist Albert Einstein. The rule of compounding is simple, the earlier you start the more you benefit. Meaning for every single rupee that you invest, it is deployed to earn return. This in turn is also possibly poised to earn more returns in future. A regular SIP mutual fund compounds your money and helps create wealth.