What is SIP?

• SIP stands for Systematic Investment Plan which is a method of investing in mutual funds wherein an investor chooses a mutual fund scheme and invests a fixed amount of his choice at fixed intervals.
• It is basically investing small amounts overtime rather than investing one-time huge amount resulting in a higher return.
• SIP investments can be started anytime, ensuring minimum risk with the correct suitable scheme plan. It is very important for the investor to choose the scheme with suits his long term goals well.
•  How does SIP work? Once investors apply for one or more SIP plans, the amount is automatically debited from their bank account and invested in the mutual funds that they have purchased at the predetermined time interval.
• With every investment in a SIP plan in India, additional units are added to the investor's account depending on the market rate. With every investment, the amount being reinvested is larger and so is the return on those investments.
• It is totally upon the investor to receive the returns at the end of their SIP's tenure or at a periodic interval.
•  Types of Systematic Investment Plan (SIP) - 
  • Top-up SIP -  This SIP allows investors to increase their investment amount periodically, giving them the flexibility to invest higher when they have a higher income or available amount to be invested. This also helps in making the most out of the investments by investing in the best and high performing funds at regular intervals.
  •  Flexible SIP -  As the name suggests, this SIP plan carries flexibility of amount investors want to invest. An investor can increase or decrease the amount to be invested as per his own cash flow needs or preferences.
  •  Perpetual SIP -  This SIP plan allows invetors to carry on the investment without an end to the mandate date. Generally, an SIP carries an end date after one year, 3 years or 5 years of investment. The investor, here, can withdraw the amount invested whenever he wishes or as per his financial goals.
•  Benefits of investing in SIP -  There are several benefits of investing in SIP over lumpsum: 
  •  Makes one a disciplined investor: SIP can be the best investment options if investors do not possess superior financial knowledge about the way market moves. With the SIP, money gets auto-deducted from one's account and goes to the mutual funds. Hence, investors can sit back and relax. Further, unlike lump sum investments, it ensures that investors are working actively towards making their investments grow because of their periodicity.
  • The rupee cost averaging factor:  With SIP comes the advantage of rupee cost averaging. With SIP, since investor's investment amount is constant for a longer period of time, with rupee cost averaging one can take advantage of market volatility. The fixed amount investors invest by means of SIP averages out the value of each unit. So one can buy more units when the market is low and by lesser units when the markets are high, lowering down one's average cost per unit.