A Systematic Investment Plan (SIP) helps the investor to invest a fixed amount in mutual funds step-by-step monthly or quarterly over a period of time, thereby averaging out the cost of investing and benefiting from the power of compounding. This works best as the investor stay invested helping the investors money earn money over the years. Investment by SIP can be done with the help of Electronic Clearing Service (ECS) so that the investment will be done regularly.
How Systemic Investment Plan (SIP) works?
SIP is a method of investing a fixed sum, regularly, in a mutual fund
scheme which allows the investor to buy units on a given date each month, so that
the investor
can implement a saving plan. The biggest advantage of SIP is
that one need not time the market. In timing the market, one can miss the
larger rally and may stay out while markets were doing well or may enter at
a wrong time when either valuation have peaked or markets are on the verge
of declining. Instead of timing the market, investing every month will
ensure that one is invested at the high and the low, and make the best out
of an opportunity that could be tough to predict in advance.
An investor can invest a pre-determined fixed amount in a scheme every month
or quarterly, depending on convenience through post-dated cheques or
through ECS (auto-debit) facility. Investors need to fill up an Application
form and SIP mandate form on which they need to indicate their choice for
the SIP date (on which the amount will be invested). Subsequent SIPs will be
auto-debited through a standing instruction given or post-dated cheques. The
forms and cheques can be submitted to the office of the Mutual Fund /
Investor Service Centre or nearest service centre of the Registrar & Transfer
Agent. The amount is invested at the closing Net Asset Value (NAV) of the
date of realisation of the cheque.
Benefit of Systematic Investment Plan (SIP)