A Systematic Investment Plan or SIP is a smart and hassle-free mode for investing money in mutual funds. It allows you to invest a certain amount (which is pre-determined) at a regular interval, which can be weekly, monthly, quarterly, etc. It is, in fact, a planned approach towards investments that enables one to instill the habit of saving and building wealth for the future. Being an easy and flexible investment plan, it has proved to be an ideal mode of investment for retail investors who do not have the resources to pursue active investments.
Your investment amount will be debited from the bank account that you use and will then be deployed into a particular mutual fund scheme. Thereafter, a certain number of units will be allocated to you based on the ongoing market rate (called net asset value or NAV) for the day. Just remember that for every time that you make an investment, extra scheme units are bought at the market rates and will be added to your own account. With the units being bought at different rates, investors benefit from Rupee-Cost Averaging and the Power of Compounding. In India, the ECS (Electronic Clearing Service) can be used for setting your recurring payment method. Some mutual funds allow tax benefits under Equity-linked savings schemes. However, this has a lock-in period of three years.
There are certain things that should be kept in mind before investing through the best SIP plans. For starters, it is wiser to start early if you are aiming for bigger returns. Also, the longer you stay, the more compounding effect you will get to enjoy. It is also important not to lose patience, as the money is bound to grow in the long run. Besides, one has to be consistent, and never skip the monthly payment. The trick is to start early and stay longer in order to reap high benefits.
