What Is SIP? Which SIP Is Best for Me?

“Hey, I want to invest something from my monthly income in mutual funds but I don’t want to take risk” Isn’t this the condition with most of us? What we do is we go to our friend, colleague, or relative whom we consider as ‘smart’ or ‘intelligent’ or some of us might go to the ultimate ‘guru’, the Google. If you have tried these things, then you would’ve known by now that the answer which comes a majority of the time is SIP. But, what exactly is SIP? Many-a-time, even the ‘smart’ friend of yours who advised you to invest via SIP mightn’t have the actual idea of what SIP actually is. So, here’s a quick guide to SIPs and how you can create wealth with your small monthly investments. What Is SIP? In simple words, Systematic Investment Plan (SIP) is a method to invest a fixed amount regularly in your favorite mutual fund scheme. With a minimum amount of Rs 500, you can start investing as per your need and convenience. Many fund houses even allow you to customize the way you want to put your money in SIPs. It can be monthly, bi-monthly, or fortnightly, though a majority of investors prefer monthly SIP. Benefits of SIP

• The investor need not to worry about the fluctuating market moods as volatility of market is minimized in SIP.
• It imparts financial discipline to your life.
• It averages out the purchase cost and maximizes the returns.
• SIP helps you to gather large corpus with regular small investments.
• Payments can be automated which means you don’t have to make any effort for the payments.
• SIP doesn’t give a burden to your wallet.
• With one-click withdrawal, SIP can act as an emergency fund for possible contingencies (like medical crisis or job loss).

How Does a SIP Plan Works? SIP allows you to buy units on a given date each month, so that you can implement a savings plan for yourself. You are allocated a certain number of units based on the ongoing market rate (called NAV or net asset value) for the day. Every time you invest money, additional units of the scheme are purchased at the market rate and added to your account. Hence, units are bought at different rates and investors benefit from Rupee-Cost Averaging and the Power of Compounding. Rupee cost averaging: As the mutual fund market is volatile in nature, in SIP you can buy more units when the market is slump and less number of units in a blooming market depending upon the NAV. Power of compounding: Because of compound interest, the amount invested for a long period will keep on increasing and will produce a better return as compared to lumpsum investment. Conclusion SIP is a blessing to the investors who seek for a tension-free investment in mutual fund and want their investments to be safe. It is a modern saving method which is also pocket-friendly and very much beneficiary as compared to the traditional bank deposits.