How Does A Systematic Investment Plan Work?

SIP is an investment strategy where you invest a fixed sum of money at regular intervals, similar to a recurring deposit scheme. Generally, most Systematic Investment Plans are associated with an investment in mutual funds. A SIP can therefore be used to invest in debt funds, equity funds, and hybrid funds as well. 

One of the main reasons why Systematic Investment Plans are rising in popularity is that they are extremely customizable. Right from the amount of money that you invest to the period as well as the frequency of investment, every aspect of the plan can be customized according to your needs. You can take into account various factors like your investment budget, your long-term goals, and your risk profile before starting your SIP. 



What makes a Systematic Investment Plan so powerful?

The power of a Systematic Investment Plan lies in the fact that it utilizes the concept of rupee cost averaging. Let's take a brief look at this concept to better understand the full power of a Systematic Investment Plan. 

What is rupee cost averaging?

When you invest in mutual funds, you can either choose to park a lump sum amount in the fund of your choice at one go, or you can adopt a SIP, where you invest a fixed sum at periodic intervals regularly. When you opt for the lump sum investment option, your cost remains fixed at whatever price you purchase the mutual fund units. However, when you opt for a SIP, you ultimately reduce the cost of your investment considerably. 

Other benefits of a Systematic Investment Plan -

The power of a Systematic Investment Plan is not limited to rupee cost averaging alone. Here are some other benefits that you can reap by implementing such an investment strategy. 

  • A SIP helps you adopt a disciplined investment approach and strategy 
  • It eliminates the need to time the market 
  • It's one of the easiest investment strategies to execute 
  • A SIP benefits you in the long-term 
  • It provides an additional benefit for investors who start early 
  • It considerably reduces market risk and the effects of market volatility 
  • It also allows you to fully utilize the power of compounding for higher returns

Conclusion - 

All things considered, the SIP option is one of the easiest and most convenient investment strategies for new investors who wish to start small. It's also highly useful for people who do not have a lump sum amount to invest in one go. If you're just venturing into the world of mutual funds, consider adopting this strategy.

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