Systematic Investment Plan
Definition -
"
A program that allows an individual to have a set amount electronically
transferred from one account to another at a specified frequency. Examples
include stock and mutual fund reinvestment programs, defined contribution
plans, mutual fund contribution programs, and automatic withdrawal plans.
also called automatic investment plan "
Systematic
Investment Plan or SIP is a simple, time-honored strategy designed to
help investors accumulate wealth in a disciplined manner over the long
term and plan a better future. This disciplined approach to investing
will provide you with the benefits like power of compounding and cost
averaging to elaborate
SIP is
systamatic investment plan i.e investing regularly monthly, quarterly
or yearly by SIP you will get the benifit of averaging and not bothered
of the market ups and down, when the market is up you will buy less
units and when the market is down you will buy more units (this will
help in averaging our price), generally we are not prepared to buy when
the markets are falling whereas we prompted to buy more when the markets
are in bullish phase due to negative sentiments in this way we misses
the opportunity to buy in the dips and selling in the highs, through
SIP we just avoid this error and over time, it will work on investors
favour only, SIP is also suggested to all who can not afford to invest
in lump sum in the market, Just Select a good fund with good track record
showing an constant growth of atleast 20% to 25% per annum over a period
of 5 to 6 years this shows that the fund has been through various stages
of the market and has survived them, hence the chances of such a fund
performing well over the coming years are better versus new fund which
was launched only in the last few years of the bull run.
Let us Understand How will an SIP help?
When the
markets are falling, it's a good time to buy. But when prices are falling
its psychologically difficult to buy. On the other hand, when the markets
peak, many investors enter the market. An SIP ensures thay you buy more
when the markets are falling and less when it's peaking, But if an investor
backs out when the markets are falling he won't be buying when the markets
are falling and this will not help him to average his price, the primary
reason behind the success of investing through the SIP route.
When you
buy the units of a fund, you may do so when the NAV is really high.
If the market dips after that, the value of your investments falls and
you may have to wait for a long while to make a return on your investment.
But, if you invest via a SIP, you do not buying units when the market
is at its peak. Since you are buying small amounts continuously, your
investment will average out over a period of time. You will end up buying
some units at a high cost and some units a lower price. Over time, your
chances of making a profit are much higher when compared to an one-time
investment
Conclusion : Systematic Investment Plan must for better savings
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What
type of a mutual fund is a SIP?"
Many thought
a SIP was a type of mutual fund, many new investors seem to be under
this misconception.
A Systematic
Investment Plan is not a type of mutual fund. It is a method of investing
in a mutual fund
