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What Is SIP, Its Meaning And Functions
19 Jun 2023

An Overview

A systematic investment plan, or SIP, enables individuals to invest responsibly in mutual funds. SIP deducts a predetermined sum from the investor's bank account regularly, which is then invested in a mutual fund of their choosing. However, before we get into the advantages of SIPs, let's first go over how systematic investment plans function.

What Is SIP?

SIP is a kind of mutual fund investment. It enables a financially prudent person to invest in a mutual fund scheme. SIPs would allow investors to make relatively modest individual deposits in mutual fund schemes beginning at Rs 500 per month over a lengthy period of time, accumulating a big investment corpus over time.

How Does SIP Function?

To properly grasp the numerous SIP advantages, you must first understand how a SIP works. When investing in a mutual fund scheme via SIPs, an investor decides to invest a certain amount of money at regular intervals such as monthly, quarterly, weekly, daily, and so on. This payment is withdrawn automatically from the investor's bank account through a standing instruction filed with the bank. After the payment has been deducted, it is invested in the Mutual Fund selected by the client, and scheme units are allotted to the investor based on the mutual fund's day-end Net Asset Value (NAV).

What are Some of the Most Important SIP Advantages?

There are several reasons behind SIP's rising popularity. But first, let's look at some of the most important SIP advantages for investors:

Better Investment Discipline

A significant benefit of SIP is that it makes mutual fund investment more disciplined and structured. While the investor continues to add investments regularly, SIP also guarantees that the investor's funds are not stressed while investing.

Rupee Cost Averaging

This is perhaps the most crucial advantage that SIP provides to investors. Because the investment amount is predetermined, while markets are high, fewer units of the Mutual Fund are acquired, and when markets correct, more units are purchased. This is known as rupee cost averaging, which averages out the cost of acquiring Mutual Fund units.

Flexibility

With few limitations, investors may stop or terminate current SIPs or start new SIPs. This flexibility means that the investor's mutual fund investments may be raised, lowered, or even discontinued depending on their financial condition.

Convenience

SIP is a handy investment approach since it is an automatic procedure aided by standing auto-debit instructions given to the bank. Furthermore, the automatic method guarantees that you never miss an opportunity to increase your investments.


Compounding Power

This is one of the SIP advantages that comes from investing for the long run. Using the SIP method, you may start saving early in life with lesser sums and remain involved for a longer period of time. This assures that the earnings on these tiny investments have more time to compound, allowing you to build a big investing corpus with reasonable ease.

Wrapping Up

By timing your trades correctly and selecting the correct strike prices, you can achieve a profitable transaction. If trading doesn't appeal to you, another option is to consider investing in upcoming IPOs. Whatever you decide, make sure you always have a Demat and trading account in your name. You cannot invest in the financial markets without one. Open a Demat account with Motilal Oswal today in a matter of minutes.

 

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