Systematic Investment Plan (SIP) is a smart financial planning tool that helps you to create wealth, by investing money in mutual funds.
SIP allows you to invest a certain pre-determined amount at a regular interval (weekly, monthly, quarterly, etc.).
In simple terms, a SIP is a disciplined planned approach towards investments and helps you inculcate the habit of saving and building wealth for the future. Benefits of SIP:
• Helps in taking advantage of Rupee Cost Averaging: It helps the investor to tide over the ups and downs of the market. In current situation where the Indian market is so volatile, the investors who have invested through SIP are least affected.
Lets understand how Rupee cost averaging works:
Average cost: Rs. 10.08/- (i.e. Rs. 30.25/3)
Average Investment per unit 1500/149= Rs. 10.06/-
Therefore, the gain is = Rs. 2.98 (i.e. (10.08-10.06)*149)
• Disciplined Investing: SIP develops a disciplined approach towards investing money since the amount to be invested is very small so it is easy for an investor to pull out few hundred rupee notes out of his monthly expense.
• Take advantage of power of compounding: The rule for compounding is simple - the sooner you start investing, the more time your money has to grow. Systematic investing has a compounding effect on your investments.
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Denne historien er fra April 2017-utgaven av Investors India.
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