A Brief Guide to Systematic Investment Plan (SIP)

A Systematic Investment Plan (SIP) is an easy and flexible way to invest in mutual funds, which is one of the most common methods practiced by the people who are interested in mutual fund investments. However, a lot of people aren’t exactly sure how it works, and what its benefits are.

What is SIP?

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As the name indicates, a Systematic Investment Plan is to invest a fixed amount of money in a particular mutual fund scheme over a fixed period of this. This kind of disciplined and organized approach allows the investor to enjoy high returns with a lower risk.

How does it work?

To start investing via the SIP route, you have to get an SIP registration form as well as a common application form. In the first form, you have to mention the amount of money you would like to invest and the date when you want it to be debited from your bank account under the scheme. Although the minimum amount varies from one fund house to another, many allow you to invest as little as Rs. 500 per month.
Once you submit the forms, you have to wait for about a month or so for your application to be processed. Once it’s approved, the fund house starts investing your money on a regular basis as per the terms discussed.

What are the benefits of SIP?

The following are the main advantages of investing in SIP mutual funds:

• SIPs are a great way to instill the habit of making investments. Since the scheme is well-structured and organized, maintenance and compliance are also easier.
• Mutual funds have their risks. However, SIPs allow an investor to get started with even small amounts (Rs. 500 per month, Rs. 1,000 per month, etc.)
• SIPs also help in averaging the cost of investment, which is to buy few units when they are expensive, and more units when they are cheaper.