A Systematic Investment Plan (SIP) is a disciplined and structured method of investing in mutual funds, where an investor contributes a fixed amount of money at regular intervals, such as monthly or quarterly, rather than making a one-time lump sum investment.
This approach enables investors to benefit from market fluctuations through a concept known as rupee cost averaging, wherein they purchase more units when prices are low and fewer units when prices are high. Over time, this helps in averaging out the overall purchase cost, reducing the impact of market volatility.
SIPs are widely regarded as an effective and convenient way to build wealth gradually, encouraging financial discipline and long-term investment growth.
How SIP Works
1. Select a Mutual Fund: Choose a scheme based on goals and risk appetite.
2. Set Amount & Frequency: Invest a fixed sum (₹500, ₹1,000, or more) at regular intervals.
3. Auto-Debit: The amount is deducted automatically from the bank account.
4. Units Allocation: Based on the NAV, units are purchased.
6. Compounding: Reinvested earnings enhance returns over time.
Benefits of SIP
Disciplined Investing: Encourages regular savings.
Affordable: Start with just ₹500 per month.
Rupee Cost Averaging: Lowers market risk.
Compounding: Boosts long-term growth.
Flexible: Start, pause, or stop anytime.
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