What is SIP – Systematic Investment Plan?

what is sip systematic investment plan

SIP (Systematic Investment Plan) is the best stock market investing strategy available in the tricky and unpredictable arena of stock trading. Opt for a SIP (Systematic Investment Plan) time-tested plan, and proceed towards a bright future.

There are very few points that everybody in this world agrees upon regarding the stock market. And the stock market unpredictability is undoubtedly one of many. Actually, people with several years of experience are not always able to track the stock market dynamics, thus falling target to faulty decisions. 

A watertight stock market investing strategy is something that individuals consider to be elusive. It is something that can be chased, but presumably can never be achieved. 

But is it a correct concept? Are things like fate, luck, chance, etc., the only deciding elements in the stock market investments? Or is there any method to approach the stock market in a speculative manner? 

The answer to the above question likely lies in the Systematic Investment Plan or SIP (a.k.a. “Periodic Payment Plan” or “Contractual Investment Plan”). 

SIP (Systematic Investment Plan)

Systematic Investment Plan (SIP) Unlike the one-time investment plans, SIP entails regular payments for a fixed period (monthly, quarterly and yearly). It allows investors to garner shares of a mutual fund by contributing a specified (which is often small) amount of money on a regular basis. And it presents the following advantages readily attractive to any investor. 

SIP Benefits

Reduced pressure on your purse

Through SIP (Systematic Investment Plan) you can enter the stock market even with a paltry investment. Your incapacity to invest a more-or-less fat amount might have kept you away from investing in the stock market. SIP (Systematic Investment Plan) is an ideal solution for your problem. 

Building for the future

We have certain requirements that can be addressed only through long-term investments. Such requirements include children’s education, buying a house of your own, post-retirement emergencies, etc. And SIP (Systematic Investment Plan) offers special help in this regard. It helps you to save or invest a small amount on a regular basis. And in due time it turns into a substantial amount for your financial goal.  

Compounds returns 

SIP (Systematic Investment Plan) not only allows you to reach a substantial amount after a specific period of time. Instead, it helps you to reach that amount at an early age, depending on when you start investing in any SIP. You can accumulate a notable amount at 70 if you start investing at 35. An earlier start at 25 can stimulate you to achieve the same amount by 60. 

Lowering the average cost 

In SIP (Systematic Investment Plan) you participate at a low average cost, courtesy dollar-cost average. You invest the same fixed dollar amount in the same investment at regular intervals over a comprehensive period of time. You are buying more additional shares of an investment when the share price is low. And you are buying fewer shares when the market share price is high. And it may result in you paying a lower average price per share on average.

The dollar-cost averaging approach does not try to time the market. Instead, it decreases the risk of investing a larger amount in investment at the wrong time. And it does the same by applying your investments out over a period of months, years, or even decades. 

Market timing irrelevance 

The previous two paragraphs tell you that SIP (Systematic Investment Plan) makes the market timing irrelevant for you. The stock market unpredictability and volatility usually play a deterrent for wannabe investors like you. In SIP (Systematic Investment Plan), you are entirely free from this problem of wrong timing. 

The SIP’s mode of function

A typical SIP (Systematic Investment Plan) entails monthly investments over a period of 10, 15 or 25 years. You are generally allowed to start your investment with a passable sum. 

You do not have direct ownership of the mutual funds. Instead, you own an interest in the monthly plan trust. The plan trust invests the investor’s regular payments, after deducting appropriate fees (like redemption fee, and annually fee), in shares of a mutual fund

Things that you should make clear before investing in a SIP (Systematic Investment Plan):

You should make specific things clear to yourself before going for a SIP (Systematic Investment Plan) investment. They include the following –

  • You should be sure about continuing to make payments for the term of the plan. Withdrawal in the midway will almost definitely make you lose your money unless you are qualified for a full refund.
  • Check the fees charged by any SIP plan. Also, check the possibilities under which the plan waives or reduces certain fees.
  • Study the SIP (Systematic Investment Plan) plan’s investment objectives. Take a note of the risks of investing in the SIP plan. And check whether you are comfortable with this SIP (Systematic Investment Plan).
  • Check your statutory rights to a refund in case you cancel your SIP plan.

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