What is SIP?: A systematic investment plan known as SIP is a smart and systematic way of investing in mutual funds. You invest a pre-determined amount on the weekly or quarterly basis. You can also allot an amount of mutual funds on the monthly basis. SIP is grown as a hassle free way of strong saving for future.
How Does SIP Work?
With SIP, investors are able to build good wealth for future with a systematic planning. Under SIP, the amount is auto-debited from the investor’s bank account on the pre-set date. The MF house invests your money into a mutual fund scheme. An investor gets certain units for the day on the basis of the ongoing rate in the market. This rate is known as net asset value.
At the time you invest, certain units of the scheme are added to your account. The financial institution buys units at the ongoing market rate. Investors get the benefit of the power of compounding and rupee-cost averaging.
How SIP is Beneficial for You
Here are the two basic advantages of investing in mutual funds through SIP.
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Rupee-Cost Averaging
It is often difficult to predict markets. Investors are often confused which is the best time to invest in the market. The Rupee-cost averaging saves you from this game of anticipating and guessing. Under SIP, your money earns more units when there is a low price. Vice-versa, your money fetches fewer units when the price is high. This allows investors to earn a lower average cost during unpredictable situations.
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Power of Compounding
Whatever amount you invest, earn interest. This interest rate is compounding and earns good wealth over a period of time. The more time you stick with the SIP, the more you earn. Hence, with SIP, the earlier you are, the better you are.
General Advantages of Systematic Investment Plans
There are many general benefits of the SIP. SIP follows a certain plan regardless of the trends. Discipline in investment gives stable and high income in long run. As an investor, you are committed to invest or save regularly.
Though SIP is generally a long-term concept, you can exit at any time. You can also increase or decrease the amount you allocate for investment. Without any efforts, you have attractive returns due to the power of compounding. A standing instruction to your bank for auto-debit saves you from the hassle of remembering any date.
How to Start Systematic Investment Planning
The exact procedure depends on the mutual fund house you select. Most of the mutual fund companies offer online facilities to apply for SIP. But the general procedure is more or less same. The very first thing is to complete your KYC requirement. Submit your photograph and proof of address and identity. You will have to present for in-person verification. Besides KYC form, an investor has to fill up and submit other forms. The forms include the nomination form, STP form, declaration form, and redemption form. After submission of all the personal details through forms and personalized verification, your SIP will start.
If you do not want to opt for active investments, SIP is the best option for you but before most important know about ” What is SIP – Systematic Investment Planning “.
