What is the full form of SIP
SIP: Systematic Investment Plan
SIP stands for Systematic Investment Plan. It is an investment plan in which you invest a fixed amount in mutual funds at pre-defined regular intervals. It helps you create significant wealth in the long-run by investing small sums of money. In simple words, it is a planned approach towards investments that helps you create wealth for future and inculcate a habit of saving. The other way of investing in a mutual fund is a one-time investment, generally known as lump sum investment.
How does it work?
SIP follows the principle of regular investments. The amount to be invested is auto-debited from your account periodically. So, in SIP, you don't need to time the market, it buys units each month on a given date with the amount debited from your account. If the price of the unit is high on that day, low units will be bought and if the price is low, more units will be bought with the same amount.
Interesting fact about SIP
It acts as an automatic market timing mechanism, e.g. it buys more units when the price is low and fewer units when the price is high. Thus, the average cost of buying the units, over its highs and lows, is reduced and the returns are improved.
Furthermore, it allows you invest in a mutual fund scheme of your choice. These mutual fund schemes invest in different companies from a variety of sectors like IT, Hospitality, Pharmaceuticals, manufacturing, etc.
Top SIP Plans to Invest in 2018 in India
Advantages of SIP