Everyone has dreams and goals—a new car, a bigger house, a family vacation to an exotic destination, and so on. But it is possible to achieve your dreams only if you work actively towards them. Investing in mutual funds through a Systematic Investment Plan (SIP) can be a simple way to help you achieve your goals. So, let’s look into the meaning of SIP, how they work, and how they can benefit you.
What is SIP ?
A Systematic Investment Plan (or SIP) is an investment mode through which you can invest in mutual funds. As the term indicates, it is a systematic method of investing fixed amounts of money periodically. This can be monthly, quarterly or semi-annually etc. When you invest steadily in this manner, it can become easier to meet your financial goals.
How does SIP work
When you invest through a SIP, you invest a fixed sum of money in a given period. This amount lets you purchase a certain number of fund units. If you continue to do this for a long time, you get to invest in the fund during the highs and lows. In other words, you don’t need to time the market to make your investments. Market timing can be a risky proposition as one can invest at the wrong time. SIP investments remove this factor of unpredictability.
Having decided on the investment tenure and frequency, you can choose to automate your investments. Give a standing instruction to your bank to transfer the amount directly from your bank account into the mutual fund SIP of your choice, on a fixed date every month (or quarter) etc..