Role of SIP in mutual fund
Systematic Investment Plan (SIP) is a type of investment scheme offered by mutual fund companies. By using SIP, you can invest small amount periodically (weekly, monthly, quarterly) into a selected mutual fund. SIP promises a well-disciplined and passive approach to retail investors to create wealth in long term (using the power of compounding). Since you are investing the amount at periodic intervals or even on a monthly basis, it also lowers the impact of market volatility. The following are the benefits of SIP as compared to lump sums investment-
1. There is no need to speculate or focus on timing the market.
2. Since the amount is invested on a monthly basis, there is little to no impact of market volatility.
3. Passive and automated approach makes you more committed to guaranteed saving/investment.
4. SIP is a very flexible plan, wherein one can create/update/cancel SIP anytime. Most of the funds start as low as Rs. 1,000 per month.
In order to enhance wealth creation, besides having clear idea of what is SIP in mutual fund, you also need to plan your SIP investments prudently. Intervals which are frequent, i.e. semi-annually/quarterly/monthly scale up the chances of purchasing units in case of low prices. Also, it is important to chart out a long-term investment plan. SIP is the most effective and beneficial for long-term investment periods and enables long-term investors reap good returns over a period of time. There is a higher probability of long-term investors profiting from the appreciation markets often tend to manifest in the long-term. Investors can also diversify their investments, which not only reduces risk but also helps in optimizing returns. There are three simple paperless steps to invest in an SIP-
1. Register for an SIP online
2. Fill the required details
3. Ensure availability of funds