The full form of SIP is Systematic Investment Plan. It is a form of investment scheme followed by mutual funds to attract investors to invest small amounts at intervals/periodically instead of lump sums. This process usually takes place weekly, monthly and quarterly. For example, you can invest with a minimum amount of Rs. 500 and ask your bank to deduct a specific amount every month. The SIP instrument plays an important role in the disciplined management of the financial system.
It is a plan where small retailers regularly make equal payments into a scheme of their choice. A systematic investment plan allows investors to save regularly with smaller amounts of money in exchange for the long-term benefits of dollar cost averaging (DCA). When using the DCA strategy, most investors buy and invest after proper calculation and discussion.
Some plans allow you to choose a fixed number of shares to buy, as the amount you invest is usually fixed and does not depend on the unit or share. An investor buys more when prices are low and buys less when prices are high.
A systematic investment plan is a passive investment, not an active one, because investors don't engage and make decisions every day. Simply put, once you invest money, you can add money regardless of how it works. This is why you need to keep track of how much you have earned or accumulated. Once you reach your desired goal, you should reevaluate or adjust your investment plans. Strategy plays an important role, so try new strategies and switch to a strategy that requires active attention, which will allow you to grow your money faster. However, it is better to consult with family, friends and experts before making any dynamic decision.
Advantages
The sips are pocket-friendly: It allows you to invest on a small scale regularly over a period of time like weekly, monthly, quarterly.
- SIPs focus on rupee cost averaging: It works better when it comes to low cost investment plans, you can buy multiple mutual fund schemes when prices are low and similarly buy multiple units when prices rise. This strikes a good balance between rupee cost averaging.
- Sip is more effective for future plans: Everyone has their own goals for the future, like buying a house, buying a dream car, having a well-planned life, but all of these include effective goal plans.
- The Sips program benefits from the power of compounding for long-term investments: It allows you to pool your invested money, say you have invested Rs. 1000 in a mutual fund scheme with a SIP validity of 20 years and expect a return of 15% p.a., where your money will grow to around 15k.
Disadvantages
While they can help a small investor maintain a steady savings plan, Systematic Investment Plans have certain conditions. Systematic investment plans usually require a long-term commitment of at least 10 to 25 years. However, investors can terminate the plan before the plan matures. Systematic investment plans are often expensive.