The Systematic Investment Plan (SIP) is a simple and time honored investment strategy for accumulation of wealth in a disciplined manner over long term period. The plan aims at a better future for its investors as an SIP investor gets good rate of returns compared to a one time investor.
What is Systematic Investment Plan ?
A specific amount should be invested for a continuous period at regular intervals under this plan.
SIP is similar to a regular saving scheme like a recurring deposit. It is a method of investing a fixed sum regularly in a mutual fund.
SIP allows the investor to buy units on a given date every month. The investor decides the amount and also the mutual fund scheme.
While the investor's investment remains the same, more number of units can be bought in a declining market and less number of units in a rising market.
The investor automatically participates in the market swings once the option for SIP is made.
SIP ensures averaging of rupee cost as consistent investment ensures that average cost per unit fits in the lower range of average market price. An investor can either give post dated cheques or ECS instruction and the investment will be made regularly in the mutual fund desired for the required amount. SIP generally starts at minimum amounts of Rs.1000/- per month and upper limit for using an ECS is Rs.25000/- per instruction. For instance, if one wishes to invest Rs.1, 00,000/- per month, then they need to do it on four different dates.
Benefits of SIP
1. SIP can be started with a minimum investment of Rs. 500/- per month or Rs. 1000/- per month.
2. It is good and effective way of creating wealth for long term.
3. ECS facility is available in case of Investment through SIP.
4. A small withdrawal from the account doesn’t affect the bank balance of an individual as compared to a hefty withdrawal.
5. It can be for a year, two years, three years etc. if a person at any point of time couldn’t be able to continue its SIP, he may give instructions atleast 25 days before to the fund house. His SIP be discontinued.
6. All type of funds except Liquid funds, cash funds and other funds who invest in very short fixed return investments offers the facility of SIP.
7. Capital gains, if applicable, are taxed on a first-in first-out basis.
8. As the investment made through SIP are not at one time. Some units bought at high price and some at low price, so chances of making gain through SIP is higher than the one time investment.
In short, SIP is a simple and effective way to create wealth but to create such wealth, one should think about the investment in SIP for a period of atleast for time frame of three years because it pays to invest in a longer run.
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2 comments:
Investing in Mutual Funds through SIP offers many benefits as, investing through SIP is Light on the wallet, and most importantly it Makes market timing irrelevant, also it offers your Power of compounding and Rupee cost averaging advantages.
The blog was absolutely fantastic! Lots of great information on Indian mutual fund SIP calculator which can be helpful in some or the other way. Keep updating the blog, looking forward for more contents...Great job.
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