What is the full form of SIP
SIP: Systematic Investment Plan
SIP stands for Systematic Investment Plan. It is an investment plan in which you invest a fixed amount in mutual funds at pre-defined regular intervals. It helps you create significant wealth in the long-run by investing small sums of money. In simple words, it is a planned approach towards investments that helps you create wealth for future and inculcate a habit of saving. The other way of investing in a mutual fund is a one-time investment, generally known as lump sum investment.
How does it work?
SIP follows the principle of regular investments. The amount to be invested is auto-debited from your account periodically. So, in SIP, you don’t need to time the market, it buys units each month on a given date with the amount debited from your account. If the price of the unit is high on that day, low units will be bought and if the price is low, more units will be bought with the same amount.
Features
- SIPs allow an investor to invest and withdraw the money anytime.
- It has no fixed tenure. It can be stopped in between and can be continued after the tenure by placing a request with the mutual fund company.
- Partial or full withdrawal is possible during or after the SIP tenure.
- The SIP amount can be increased or decreased during the SIP tenure.
Interesting fact about SIP
It acts as an automatic market timing mechanism, e.g. it buys more units when the price is low and fewer units when the price is high. Thus, the average cost of buying the units, over its highs and lows, is reduced and the returns are improved.
Furthermore, it allows you invest in a mutual fund scheme of your choice. These mutual fund schemes invest in different companies from a variety of sectors like IT, Hospitality, Pharmaceuticals, manufacturing, etc.
Top SIP Plans to Invest in 2018 in India
- SBI Blue Chip Fund
- Aditya Birla Sun Life Frontline Equity Fund
- ICICI Pru Focused Blue Chip Fund
- Mirae Asset Emerging Bluechip Fund
- Reliance Small Cap Fund
- Franklin India Higher Growth Companies Fund
- Kotak Select Focus Fund
- HDFC Balanced Fund
- ICICI Pru Balanced Mutual Fund
Advantages of SIP
- Disciplined approach to investments: You don’t need to plan how much to invest, when to invest and where to invest money.
- No need to time the market: You don’t need to actively monitor the market.
- Rupee cost averaging: You get the benefit of rupee cost averaging, an effective investment strategy, e.g. a fixed amount is invested every month so it happens to buy more units when the price is low and fewer units when the price is high.
- Power of compounding: A small amount of money invested regularly grows to a large sum comprising of your own contributions and returns compounded over the years.
- Power of starting early: It allows you to start investing early. The earlier you start investing, the easier it will be for wealth creation.