What is a Systematic Investment Plan SIP? How does it work?

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Maintaining day-to-day expenditure along with a fixed investment is not a cakewalk these days. For future higher expenditures and maintaining your lifestyle you need to start investing. A lump-sum investment might not be possible or feasible for many prospective investors. Such situations demand an addressal. To create wealth it is imperative to start early and start low if needed. Here comes the importance of SIP (Systematic Investment Plan). In this article, we shall discuss SIP and how it works.

What Is a Systematic Investment Plan?

Commonly known as SIP, a Systematic Investment Plan is a mutual fund facility for investors. Investors who seek to invest in a predefined manner avail of a SIP mutual fund offer. This particular facility enables the investor to invest a stipulated amouƒnt of money at regular intervals in the scheme selected. The investors can decide on their payment intervals. These intervals can be weekly, quarterly, semi-annually, monthly, or even annually.

The minimum amount can be as low as INR 500. By taking up SIP for investment, the investors stay worry-free about the market movement. Through a SIP planner, the investors can make a fixed calculation of the value of their SIP for the future.

Why select a Systematic Investment Plan?

The benefits of SIP investing are unmatched. Since it has compounding power, regular and long-term investment shall bring out magnificent results. This compounding effect makes sure that the money is not only earned on the actual investment but also the gains of the principal invested.

Early investing and saving in the starting adulthood period is no wonder the smartest decision of all for achieving goals. Investing INR 5,000 a month through SIP can create an unimaginable impact till the person reaches their retirement age. This SIP amount can be calculated through a SIP planner.

How Does a SIP Work?

A Systematic Investment Plan is all about investing a sum of pre-decided money in a mutual fund scheme. This facility is offered by mutual funds so that the investors can invest in a disciplined and regularised format. SIP enables the investors to invest in one unit each month so that they can work on their saving plans. This SIP amount can be calculated through any SIP planner tool.

One of the biggest reasons why investors seek to invest in SIP is to avoid the timing of the markets. It is not required to time the market when one invests with SIP. The working of SIP is quite lucid to understand. The investor determines the amount they wish to invest beforehand in the scheme. This amount is invested at regular intermissions depending upon the convenience of the investor. For example, they can invest their sum of stipulated money monthly, weekly, quarterly, or even annually.

As the investor has decided on their payment scenario, they must fill out a SIP mandate form and application form in which they specify their SIP payment date. After this specification, the SIP amount is automatically debited as per a standing instruction. These forms can be submitted to the mutual fund office or any nearby service center. The amount which is pre-decided is invested at the NAV (Net Asset Value) of the date of realisation of the cheque.

The Bottom Line

Goals can only be achieved when one works towards them. Building up wealth in a jiffy seems next to impossible. A Systematic Investment Plan helps in achieving these targeted goals. A regular step-by-step investment over some time can bring about an impactful result on the financial condition of the person. The compounding effect of SIP helps to create wealth for achieving goals in life.

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