Systematic Investment Plan or commonly known as SIP is one of the important concept of investing.
The concept of SIP is not new.
Recurring deposits, Insurance Premium payments are also a form of SIP.
With respect to Mutual Funds, it is a regular/recurring investment in Mutual Fund Schemes.
In general terms, Systematic Investment Plan means certain amount invested in a mutual fund scheme every month/every quarter.
An SIP means you commit yourself to investing a fixed amount every month.
For example - Mr X invest Rs 1000 every month in ABC Mutual Fund for a period of 15 years.
Benefits of Systematic Investment Plan There are two major benefits of a Systematic Investment Plan.
1) Financial Goal 2) Rupee Cost Averaging 1) Financial Goal Each one of us have our financial goals and it changes on accomplishment of reaching the financial goal.
It will differ from person to person based on their income levels, requirement.
It can be buying a car, a flat, a LED television etc.
Lets take an example - Mr X wants to buy a car after 3 years and the cost of the car is Rs 5,00,000.
It means within a period of 36 months, he has to accumulate Rs 5,00,000 in order to buy the car.
Every month if he invest Rs 12,500 in a Systematic investment plan ( Assuming a return of 8% per annum) he can accumulate Rs 5,04,567 at the end of 3rd year.
2) Rupee Cost Averaging Rupee Cost Averaging means investing a fixed sum at regular intervals.
The concept behind this process of investing is fixed sum of money can be invested regularly and over time it averages out the costs.
From a Systematic Investment Plan perspective, If you have to buy units of a mutual fund - by following rupee cost averaging, the fixed amount of money will fetch more units when the net asset value of the units are down and less units when the net asset value of the units are up.
Investors should not worry about the daily fluctuations and focus on long term returns.
Rupee Cost Averaging take care of your investment from the volatility of the market since it smoothen out ups and downs.
The most important thing to remember is Rupee Cost Averaging only average the cost of an asset purchase.
Generally discipline is a basic requirement to achieve any goal, discipline in investing is important.
Through Systematic Investment Plan you can be disciplined and achieve your goals.
The concept of SIP is not new.
Recurring deposits, Insurance Premium payments are also a form of SIP.
With respect to Mutual Funds, it is a regular/recurring investment in Mutual Fund Schemes.
In general terms, Systematic Investment Plan means certain amount invested in a mutual fund scheme every month/every quarter.
An SIP means you commit yourself to investing a fixed amount every month.
For example - Mr X invest Rs 1000 every month in ABC Mutual Fund for a period of 15 years.
Benefits of Systematic Investment Plan There are two major benefits of a Systematic Investment Plan.
1) Financial Goal 2) Rupee Cost Averaging 1) Financial Goal Each one of us have our financial goals and it changes on accomplishment of reaching the financial goal.
It will differ from person to person based on their income levels, requirement.
It can be buying a car, a flat, a LED television etc.
Lets take an example - Mr X wants to buy a car after 3 years and the cost of the car is Rs 5,00,000.
It means within a period of 36 months, he has to accumulate Rs 5,00,000 in order to buy the car.
Every month if he invest Rs 12,500 in a Systematic investment plan ( Assuming a return of 8% per annum) he can accumulate Rs 5,04,567 at the end of 3rd year.
2) Rupee Cost Averaging Rupee Cost Averaging means investing a fixed sum at regular intervals.
The concept behind this process of investing is fixed sum of money can be invested regularly and over time it averages out the costs.
From a Systematic Investment Plan perspective, If you have to buy units of a mutual fund - by following rupee cost averaging, the fixed amount of money will fetch more units when the net asset value of the units are down and less units when the net asset value of the units are up.
Investors should not worry about the daily fluctuations and focus on long term returns.
Rupee Cost Averaging take care of your investment from the volatility of the market since it smoothen out ups and downs.
The most important thing to remember is Rupee Cost Averaging only average the cost of an asset purchase.
Generally discipline is a basic requirement to achieve any goal, discipline in investing is important.
Through Systematic Investment Plan you can be disciplined and achieve your goals.
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