A Systematic Investment Plan (SIP) is a disciplined way of investing in mutual funds. It allows you to invest a fixed amount of money at regular intervals, be it monthly, quarterly, or annually. This approach is ideal for investors who wish to build a substantial corpus over time without making a lump-sum investment. The systematic nature of SIP helps in mitigating market volatility by averaging out the cost of purchase over time.
How Does SIP Work?
In a SIP, the investor decides the amount and the frequency of investment. This amount is then auto-debited from their bank account and invested in a chosen mutual fund. With every investment, units of the fund are allocated to the investor based on the current Net Asset Value (NAV). Over time, as more units are accumulated, the investor benefits from the power of compounding, where the returns generated from the investment also start earning returns.
Meaning of Systematic Investment Plan (SIP)
The term “Systematic” refers to the regular and disciplined approach to investing. “Investment Plan” indicates a structured strategy to grow your wealth over time. Together, SIP implies a systematic method of growing your savings into a significant investment corpus with minimal effort and without the need to time the market.
Features and Benefits of SIP
SIP offers numerous benefits such as flexibility, affordability, and convenience. You can start with a small amount, making it accessible to all types of investors. SIPs are also highly flexible, allowing you to increase or decrease your investment amount, pause or stop the SIP, or switch funds at any time. The power of rupee cost averaging and compounding makes SIP a preferred choice for long-term wealth creation.
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