SIP – Systematic Investment Plan(Power Of Compounding) || What Is SIP || How SIPs Work

SIP – Systematic Investment Plan(Power of Compounding)

A systematic investment plan (SIP) is a process of investment, wherein the investors can make a systematic periodic investment in market-linked securities for a specific tenure. The investments can be made in small amount instead of lump-sum.

The investment can be made in the frequency of weekly, monthly, or quarterly. SIP helps to grow money through compounding interest, ensuring higher returns on maturity.

What Is SIP - Systematic Investment Plan?

Systematic Investment Plan is commonly known as an SIP. In India, SIP plans allow you to invest a fixed amount in your favorite mutual fund schemes periodically to grow your SIP premium through compounding interest.

So here’s what is SIP in a nutshell: It is a smart, or rather hassle-free, mode of investing money in mutual funds, where you are allowed to contribute a pre-determined sum of money on a weekly, monthly, or quarterly basis.

SIP mutual funds are flexible in nature, thus, investors can choose to decrease or increase the amount of investment, or stop investing in the plan whenever they want. SIP is the safest and best choice of investment for beginners and for those who are not well-versed in the mechanism of the financial market.

 

How SIPs Work

Mutual funds and other investment companies offer investors a variety of investment options including systematic investment plans. SIPs give investors a chance to invest small sums of money over a longer period of time rather than having to make large lump sums all at once. Most SIPs require payments into the plans on a consistent basis—whether that's weekly, monthly, or quarterly.

The principle of systematic investing is simple. It works on regular and periodic purchases of shares or units of securities of a fund or other investment. Dollar-cost averaging involves buying the same fixed-dollar amount of a security regardless of its price at each periodic interval. As a result, shares are bought at various prices and in varying amounts—though some plans may let you designate a fixed number of shares to buy. Because the amount invested is generally fixed and doesn't depend on unit or share prices, an investor ends up buying fewer shares when unit prices rise and more shares when prices drop.

SIPs tend to be passive investments because once you put money in, you continue to invest in it regardless of how it performs. That's why it's important to keep an eye on how much wealth you accumulate in your SIP. Once you've hit a certain amount or get to a point near your retirement, you may want to reconsider your investment plans. Moving to a strategy or investment that's actively managed may allow you to grow your money even more. But it's always a good idea to speak to a financial advisor or expert to determine the best situation for you.

SIP CALCULATOR-  https://www.securetrading1.com/calculator/sip

Advantages and Disadvantages of Systematic Investment Plans

Pros

Power of Compounding-

When you invest regularly through SIP and invest for the long term, the benefits are magnified by the compounding effect. Compounding effect ensures that you earn returns not only on your principal amount (actual investment) but also on the gains on the principal amount i.e. your money grows over time as the money you invest earns returns. And the returns also earn returns.

• "Set it and forget it"

• Imposes discipline, avoids emotion

• Works with small amounts

• Reduces overall cost of investments

• Risks less capital

 

 

• Cons

• Requires long-term commitment

• Can carry hefty sales charges

• Can have early withdrawal penalties

• Could miss buying opportunities and bargains

SIP CALCULATOR-  https://www.securetrading1.com/calculator/sip

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