Mutual Funds SIP is one of very interesting ideas of Investment. SIP means Systematic Investment Plan. As the name itself suggests, SIP means investing in a particular Mutual Fund Scheme, systematically and regularly. In Systematic Investment Plan one can choose to invest a particular amount at every month, or at every quarter or after every six months. And he can decide to make this investment for some predetermined years may be for 5 years, 10 years or 20 years as per his requirement.
Most popular is monthly SIP. In monthly this the investor invests a particular amount on a particular pre-decided date of every month. Suppose the investor decides to invest INR 500 on 1st day of every month, he simply gets the number of units based on the NAV (Net Asset Value), of the Mutual Fund scheme on that day. It means if on 1st August the NAV of Mutual Fund per unit is INR 5, then he gets 100 units of mutual fund. Then on 1st day of September, if the NAV per unit is INR 6, then he gets 83.3333 units (500/6).
In this way, every month units are purchased for his investment of INR 500. And at the end of the tenure of the SIP he gets his money back. Suppose at the end of the tenure of the SIP total units purchased during the tenure of SIP are 5000 and NAV per unit at that time is INR 70, then he would get the INR 350,000 (5000*70). This is the basic idea of Mutual Fund SIP.
There are so many good reasons to invest in Mutual Fund Systematic Investment Plan, as listed here
Regular and Disciplined Investment:
This is the most important advantage of Mutual Fund SIP. Due to SIP the investment is made regularly and systematically. Due to this the assurance is created that every month certain amount will definitely be invested, which would get spent haphazardly.
SIP gives Simplicity in Investment:
This is also good aspect of Mutual Fund SIP. This Investment is very easy. Mostly it happens through ECS. And your account is debited automatically and units are purchased for you for that. As the date of investment is predetermined say 1st of every month, you just have to ensure that you have adequate balance in your bank account. Once you ensure that your investment is done automatically.
Advantage of Diversification:
Mutual Fund Investment itself offers diversification as you can get invested in so many securities. In SIP one can enjoy one more benefit of diversification, because the investment is done at different levels of Stock Market. Due to this the market risk is even reduced to a large extent.
One can start with lowest investment:
Mutual Fund SIP Investments are possible with bare minimum amount of INR 500. This enables even small investor to invest systematically. In fact with this one can invest in different funds with monthly amount of INR 500. This is good because with this there can be even more diversification which is always good!
Power of Compounding:
The systematic investment in this manner can create wonders. As there is compounding of the investment for the longer tenure say 5 to 20 years. And continuously investing for such a large tenure definitely creates huge wealth generation!
Thanks for reading this article patiently, and I hope it was useful to you to understand the nature and benefits of the SIP of Mutual Funds. If yes you would love to share this!