SIP (Systematic Investment Plan) is a smart and hassle free mode of investing in mutual fund schemes.
Through SIP we can start investing a pre-determined amount (as low as 500 rupees per month) , on a particular date of every month, into mutual funds, by giving standing instructions to debit our bank accounts.
When we invest through SIP, we buy units regularly (every month) which helps to average out our costs in volatile market conditions.
SIP gives great returns over long periods since it gains from the true power of compounding. This means, SIP stands for small monthly investment and big compounded returns.
SIP works on the principle of rupee cost averaging. What this means is that the average costs of units bought is always lower than the average market price of units. Since, through SIP our monthly investment amount is fixed, we automatically buy more units when prices are low and buy fewer units when prices are high. This automatically brings down our average costs than the average market price during the period. So, eventually when unit price soar, investors get dual benefit of higher unit prices and lower average cost.
SIP is a planned approach towards investment to create wealth for the future with small monthly investments.