What is SIP?

lets user

businessman | Posted on 8-Aug-2019

Mutual Funds provide profits only when you invest in bulk. This prevents many people with lower income or lesser affordability to invest in Mutual Funds. However, many of the top mutual fund companies like Kotak Mutual Funds have come up with their systematic investment plan that allows smaller and regular investment over a tenure.

Letsdiskuss

@Blogger | Posted on 4-Mar-2019

Systematic Investment Plan is also referred to as SIP. It allows investors to invest small amounts of funds at regular intervals and not in lump sums. The frequency can be weekly, monthly, or quarterly depending upon your comfort. You can also call it as an investment vehicle offered by Mutual Fund investors.
Investors debit a fixed amount at the decided interval time. Investors are allocated with specified number of units as per their current Net Asset Value. Every time a fund is invested more units are added to the investor’s amount.
SIPs are basically made to encourage disciplined investment. They are completely flexible. Investors are free to invest at any point of time or they may also increase or decrease the amount they want to invest.
Recurring payments can be set using Electronic Clearing Services (ECS) in India. SIPs also give benefits related to Equity Linked Savings Scheme.

Letsdiskuss

Preeti Taneja

Entrepreneur | Posted on 4-Mar-2019

SIP or Systematic Investment Plan is, more or less, same as a mutual fund. Only, instead of investing your capital in one-go, you take a systematic approach of investing a fixed, smaller amount over an extended period of time.

A very common example: Sam invests Rs 10,000 in a lumpsum for 10 months. Alex is investing Rs 1,000 every month for the next 10 months.

(Courtesy: Mobikwik.com)

Alex is investing in Systematic Investment Plan.

(Now note: SIP is a method of investing in mutual funds. When someone says "I have invested in SIP", they are basically saying that they have invested in Mutual Funds. Only, they have invested through a rather newer model. Similarly, when someone says "I have invested in Mutual Funds" unless objectively specified, they are basically saying that they have invested in Mutual Funds in a lump sum.)

Also read: Which is better Daily SIP or Monthly SIP?

So, again, SIP is a plan or method of investing in mutual funds through a systematic approach. You decide a tenure and a fixed amount. And then you invest this fixed amount on a quarterly, monthly or weekly basis for that fixed tenure.

This model has gained massive popularity in recent times as compared to the investing in mutual funds in a lump sum. It has many benefits.

(Courtesy: Moneycontrol.com)

One of the biggest benefits of SIP is that it's a much affordable investment option for retail investors who cannot spare a large capital in one-go. In addition, SIP is also a much safer option comparatively. You can exit the market anytime you want, with all your money, without incurring any penalty.

Also read: Which is the best way to invest in the stock market – direct purchase from the stock exchange or through SIP in Mutual funds?

Also, unlike other traditional investment options, with SIP, you don’t have to care about the market ups and downs. You don’t have to stay glued to the charts. Given the market almost always self-correct in the long run, if you're in the game for about 10 years or more, you're almost guaranteed a high return. (Of course, you need to have a good financial consultant!)

Another great thing about Systematic Investment Plan is that it doesn’t require you to be technically proficient and know all the nitty-gritty. Sure, knowing more is always better. But here it's not mandatory. This makes the investment option quite attractive for beginners.

So, if you're planning to invest in SIP, kudos! Start right away. Define your goals, set a tenure, settle on a fixed amount and then pick a plan that best suits your needs and goals.