Systematic Investment Plans (SIPs)

Systematic Investment Plans or SIPs are one of the most popular ways of investing in Mutual Funds. SIPs help inculcate financial discipline and build wealth for the future. With SIPs, you can start small and gradually build a corpus in a systematic and planned manner.

They carry hefty charges and also impose early penalties if withdrawn early. However, it reduces capital and also the overall cost of investments. Most of the brokerages and mutual fund companies offer SIPs. They have many requisites, i.e. a default payment can terminate the plan, and it can also be costly to establish.

A SIP is a systematic approach to investing and involves allocating a small pre-determined amount of money for investment in the market at regular intervals (usually every month)

SIPs can help you escape market volatility by eliminating the guessing game of market performance. Regular investing ensures that the average purchase cost is evened out in the long run.

When the markets rise, you get fewer units, and when the markets fall, you receive more units. This minimizes your risk and ensures you acquire investments at a lower average cost per unit.

Saving a small sum of money regularly for long periods of time can have an exponential impact on your investment because of the effect of compounding. The following examples illustrate that:

The SIP route is the preferred way of investing in stocks and Mutual Funds because it allows you to participate in the market while managing risk better.

Advantages of investing in SIP

Financial Discipline: The regularity of SIPs breeds financial discipline. It encourages forced savings and helps you build a corpus without cramping your lifestyle.

Flexibility: SIPs provide greater flexibility in investing. You can increase or decrease the amount of investment at any time.

Convenience: SIPs are a hassle-free mode of investing. You can easily do it online with a one-time set of instructions. You SIPs will automatically start getting accumulated.

Lower risk: Lump sum investments may expose you to greater capital risk. A SIP spreads your investment over time and reduces the risk to capital and will help you navigate volatility better.