An Introduction to Systematic Investment Plans
Systematic investment plans are also known as SIPs. With the help of a SIP, you will be able to invest in mutual funds in a systematic manner. SIP is actually a planned approach to investment. It will help in developing the habit of saving and, therefore, help in building up wealth for future usage.
However, you need to keep in mind that SIP is not a financial product. This is simply a process of investing your money in the different mutual fund schemes.
How does It Work?
For this, you first have to choose the scheme that you want to invest in. Thereafter, you need to decide on the amount along with the exitage. Do not forget to decide the frequency of your investment. As you invest, the units are allocated according to the present market rate. Keep in mind that you will get less units when the price is high and more units when the price is low. When you reach the exitage, you will be able to redeem the units and obtain the maturity amount. If you want, you can also redeem the unit partially and extend the remaining unit for further investment.
SIP is certainly the best way to enter the equity market. Here are some of the basic features of SIP.
- You will be able to invest as little as Rs. 500 every month.
- Makes you develop the habit of regular and disciplined investment.
- You do not have to spend time in the share market.
- It also has rupee-cost averaging.
- The returns are calculated at a compound rate. This means that you will be able to get big corpus on small investment over time.
- SIP is flexible as you have the liberty of increasing or decreasing the amount when you want.
- There are some funds that even offer tax benefits.
You have the option to choose either the monthly investment mode or the quarterly investment mode. The minimum duration of an investment is 6 months. There is no maximum limit on duration and you will be able to invest for as long as you want. You can choose SIP in Tax Savings mutual funds such as ELSS or Equity Linked Saving Scheme.