A systematic investment plan (SIP) is a means of investing in a mutual fund or any asset.
You pick a mutual fund to invest in, the principle behind SIP is that you invest a set amount of money at regular intervals.
Most people think of mutual funds when they hear the term “SIP.”
This is due to the fact that most individuals only use SIP for mutual funds.
SIPs may be used to invest in anything, including mutual funds, equities, gold, and cryptocurrency.
SIP is automated in the case of mutual funds. That example, you may set up a SIP and have the money deducted at predetermined intervals.
After you set up the AutoPay option, your monthly SIP will be deducted from your bank account and deposited in the mutual fund of your choosing.
However, SIP automation is not always necessary.
Many individuals invest the amount manually in stocks, gold, and other assets and term it a SIP investment, which is also correct.
Many people believe that a SIP is established at one-month intervals because of mutual funds.
This isn’t mandatory.
SIPs may be set for any interval you like – the choice is yours. It might be done every day, every week, every month, every year, or every ten days, depending on your preferences.
You should keep in mind that most mutual fund systems only allow you to automate SIPs for monthly intervals.
Multiple SIPs can also be started in the same mutual fund.
You can cancel your SIP at any point of time.
Benefits of Systematic Investment Plan (SIP)
1. Rupee cost averaging
The markets are ever-changing. They fluctuate between being up and down.
At the same time, it is hard to timing the market and always receive the best price.
Instead, you invest at predetermined intervals to avoid this (every month, or every week, etc).
So, over time, you invest when the price is little higher, and sometimes when the price is somewhat lower.
You may avoid investing when the markets are excessively high by doing so.
This also protects you against the risk of unusual market surges when the markets are severely overpriced.
This is called rupee cost averaging.
Discipline is important.
People start SIPs to bring discipline, which may sound immature, but it is real.
Many people avoid investing because of a one-time expenditure or some random expense – procrastination, in a word.
Setting up a SIP ensures that the money is invested on a regular basis, ensuring that you do not miss out.