What is SIP?

Introduction

In this article I will be writing about the SIP(Systematic Investment Plans), is one kind of investment plan under mutual funds. Earlier I have written about Mutual Funds. In that article I have explained the importance of investing in mutual funds. The main advantage of the mutual funds is high return for the investment. This article explores the one type of investment plan in mutual funds called SIP.

What is SIP?

SIP is the plan for saving on mutual funds regularly. The minimum amount to be invested can be as small as Rs 500 and the frequency of investment is usually monthly or quarterly. It is just like a recurring deposit with the post office or bank where you put in a small amount every month. The difference here is that the amount is invested in a mutual fund. The amount which you invested on SIP is directly invested in the equity market. The amount is invested in the form of units called NAV(Net Asset Value). For example, when the market is good NAV value will be increased.

The amount invested in SIP is not the entire amount would be invested in the market. That is our option to select how much amount to be invested in the share market. When the market is high, the unit values will be more and you will buy only less units.

Summary

It makes you disciplined in your savings. Every month you are forced to keep aside a fixed amount. This could either be debited directly from your account or you could give the mutual fund post-dated cheques.  In my next article I will be writing about the NAV and how it is calculated?. Thank you for reading this article. You can subscribe to our future articles here.