SIP OR SYSTEMATIC INVESTMENT PLAN is a planned investment program under which a small amount of money is invested at regular intervals (monthly / quarterly) in Mutual Fund schemes, generally Equity Mutual Funds.
SIP is a simple device which helps you to save and invest in a disciplined manner without timing the market. Long term SIP in Equity Funds of 10/15/20 years is an inflation beater and an effortless wealth creator, due to rupee cost averaging and power of compounding.
Investment Discipline: SIPs give a disciplined approach to investing: One of the major benefits of investing via SIP is that it helps in instilling the much needed investment discipline.
Convenience: SIPs are also very convenient. Money is deducted from your Bank Account through Auto Debit Facility. Liquidity -Facility to withdraw the Invested Amount any time. Although not recommended for all times.
Minimize the risk of Equity Fluctuations: As you are making periodic investment in equities you are able to ride through ups and downs of equity with ease knowing that in a market downturn or a correction, you will get more units for the same monthly investment.
Advantage of Diversification: Major benefit of investing in Mutual Funds via SIPs is that you get the advantage of diversification even with small investments. So your risk is spread out enabling you to make most of the gains from different holdings.
Benefit of Compounding: Since you remain invested for longer period, the investment is compounded and hence the yield goes up. Earlier you start investing in SIP, the better it is and even with a small saving of Rs 1000/- to Rs 10,000/- and as your investment compounds over longer term it gives you an advantage of wealth creation. SIP should be done for a minimum period of 10 to 15 Years (preferably 15 Years or more) to get full benefit of compounding.
Benefit of Rupee Cost Averaging: It is a technique of buying fixed rupee amount of a particular investment at regular intervals, regardless of NAV. When the market goes up you earn fewer units and when it falls you receive more units.
You are buying the units in all and different scenarios –Market goes up, Market goes down, Since you are buying units every month at a different NAVs, the purchase cost is averaged out.