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Systematic Investment Plan

Systematic Investment Plan (SIP) is a disciplined way of investing, where you invest fixed amounts at a regular frequency (say, every month or quarter). For example, you commit to invest a pre-specified amount (Rs 500 onwards) every month in a mutual fund. You fix a date on which every month the amount gets invested. You can opt for electronic clearing system (ECS)/National Automated Clearing House (NACH).

SIP is an option through which the investor can decide to invest a fixed amount on a monthly basis for a fixed period in the scheme(s) of his choice. SIP in an equity fund acts as a tool to create wealth in the long-term.

It is very simple to operate a SIP -- after the initial account opening it can work automatically through a standing instruction. Investors should not make the mistake of closing the SIP during a bear phase in the market. Markets are cyclical and during a bear phase the investor is able to get more number of units as he is able to buy low. SIP in three to four equity funds should be able to give the investor the necessary diversification.

ADVANTAGES
OF SIP

The advantages that MFs offer include professional management, affordability, liquidity and convenience. Besides, they are well regulated, transparent and tax efficient. Having invested in a MF scheme, the investor need not track the Net Asset Value (NAV) or performance on a daily basis.

Power of Compounding

SIP helps you to start investing at an early age to meet the greater expenses of your life. Saving a small sum of money regularly makes money work with greater power of compounding with significant impact on wealth accumulation.

Convenience and Regularity

SIP gives you the convenience to pay through Electronic clearance service (ECS), Auto Debit or NACH. You can decide the amount and the mutual fund scheme. A fixed amount will automatically get debited from your account on a date specified by you.


Rupee Cost Averaging

SIP minimizes the effects of investing in volatile markets. It helps you average out your cost by generating superior returns in the long run. It reduces the risk associated with lump sum investments. Since you get more units when the NAV drops and fewer when it rises, the cost averages out over time Thus the average cost of your investment is often reduced.

Disciplined approach towards investment

Since you invest regularly, it makes you disciplined in your savings, which leads to wealth accumulation. Disciplined investing is vital to earning good returns over a longer time frame