Looking into SIP - Systematic Investment Plan

What is meant by the term SIP- Systematic Investment Plan?

A Systematic Investment Plan is one of the best ways to save your money and get started on investments by reducing the risk factor considerably in comparison to the stock exchange. It is more or less like paying instalments each month, week, quarter, or whatever duration you decide for yielding higher returns than recurring deposits or in some cases fixed deposits. Experts suggest it so as to save up for the future by investing a sum of money at fixed intervals. Systematic Investment Plan is an excellent way to keep track of your portfolio and to get calculated returns on your investments.

What is the working principle behind SIP?

In layman terms, a SIP (Systematic Investment Plan) is a setup; where in money gets debited automatically from the authorised bank account during stipulated durations. The deducted money is then put into certain mutual funds chosen by you or your financial advisor. It is a simple, versatile and flexible way of investing money.  After the money is debited, certain units are allocated to you. These units are decided by the Net Asset Value (NAV) set for the day. Whenever you invest a certain amount, a few additional units that are under the scheme are bought at whatever the market rate is and is further added to your account. The entire formula works on the power of compounding and rupee-cost averaging.

What are the advantages of Systematic Investment Plans

• It ensures that you save in a disciplined manner

 

It is integral that you set a goal for yourself. When you aim at attaining financial prosperity, then you start keeping money aside. When it comes to Systematic Investment Planning (SIP), you are bound to keep a little money aside every month- resulting in a disciplined approach towards saving and investing.

• The ease of flexibility

 

The whole idea behind having a fixed schedule and giving you an option of saving the money is for your growth. But, unlike many other options- this comes with a choice. You can choose to pay a low or a high amount whenever you need and discontinue if you feel that you are not yielding expected results. Although 3-5 years is an advised duration for you to let your funds grow, the choice of opting out is present at all times.