Systematic Investment Plan ( SIP )
Systematic Investment Plan (SIP) is an option where you invest a fixed amount in a mutual fund scheme at regular intervals. For example, you can invest 1,000 in a mutual fund every month. It is a disciplined investment plan and helps reduce propensity to market fluctuations. It is a convenient tool that helps you preserve capital and also render significant wealth creation in the long-run.
SIP investments can help you reach your financial goals by taking advantage of rupee cost averaging, and growing your investments with compounded benefits.
SIP has several advantages over one-time investment. Some of the advantages are mentioned below:
- Disciplined approach to investments
- Flexibility to invest small amounts every month
- Benefit from the power of 2 powerful investment strategies
- Rupee cost averaging – helps counter volatility
- Power of compounding – small investments create a big kitty over time
- Convenient and hassle-free mode of investment
- No need to time the market
Rupee Cost Averaging
Rupee Cost Averaging is an effective mechanism which helps in eliminating the need to time the market. Under this method, one need not be concerned about when and how much to invest. A fixed sum of money can be invested regularly and over time it averages out the costs. Say, you invest 1,000 a month, and, the price of the selected mutual fund scheme unit is 10 in the first month, you will get 100 units.
In the next month, if the unit price falls to 9, you are allotted 111 units. In the third month, if the price drops further to 8, it can get you 125 units. Thus, by investing 3,000 over three months, you will get 336 units.
On the other hand, had you invested the entire amount in the first month itself, you would have gained just 300 units. In case of SIPs, the average unit cost is about 8.9 as compared to 10 in case of lump sum investments. Thus, SIPs help lower the average unit cost and can buy you more units.
Power of Compounding
You can gain from compounding by reinvesting the money you earn from your investments to earn even more. The earlier you start, the longer your money has the opportunity to compound and enhance your corpus helping you achieve your financial goals.
Below is an example for a SIP of 1,000 invested per month @8% till the age of 60.
Thus, the power of compounding can have a considerable impact on your wealth accumulation, particularly if the investment is for a long period of time.
Convenience of Investment
Register for SIP by signing up the required forms of periodic investments (monthly/quarterly) based on your suitability. Your account will be automatically debited on the requested date to purchase the units of the required fund.
SIP is a simple, convenient and affordable way to invest for your future. With as little as 1,000 every month, it’s an effective method to invest in the growth potential of Mutual Funds.
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