Sip meaning business11/21/2023 ![]() Investors should choose the mutual fund scheme based on their asset allocation strategy. They should define their investment horizon, risk tolerance and expected returns. Investors should have a clear investment objective before investing in an SIP. Factors to consider before investing in an SIP Investment objective DiversificationĪn SIP allows investors to diversify their investment portfolio by investing in different mutual fund schemes across other asset classes. As the investment grows, the power of compounding helps in generating higher returns. Long-term wealth creationĪn SIP is a long-term investment option that helps in creating wealth over time. Affordable investment optionĪn SIP allows investors to invest a small amount of money regularly, making it an affordable option for people with different income levels. ![]() Investors buy more units when the market is low and fewer units when the demand is high, resulting in a lower average purchase price. Rupee-cost averagingĪn SIP helps mitigate the market volatility risk by averaging out the purchase cost. It gives investors the opportunity to stay disciplined and avoid any potential “impulsive” decisions that may adversely affect their investment portfolio. Benefits of an SIP Disciplined approachĪn SIP helps develop and foster the habit of investing regularly, irrespective of the market conditions. Over time, the average purchase cost will be lower than the market price, resulting in better returns. 5,000 per month in a mutual fund scheme, they will buy more units when the market is low and fewer units when it is high. This helps reduce the average purchase cost and mitigate the market volatility risk.įor instance, if an investor invests Rs. Under this principle, investors buy more units when the market is low and fewer units when the demand is high. How does an SIP work?Īn SIP works on the principle of rupee-cost averaging. An SIP helps investors develop and foster the habit of investing regularly, irrespective of market conditions. The investor can choose the amount, interval, and mutual fund scheme they want to invest in. Disciplined investing - Investment via SIP inculcates the value of disciplined investing in an investor as they are committed to investing a specific amount for a fixed period of time which is essential in long term wealth creation.*By signing up you agree to our Terms and Conditions.They also have the option to change the amount, pause or stop the SIP. Flexibility - An investor has the flexibility to choose the amount, duration and the interval of the SIP.This brings down average cost of units over the long term. It means that the investor gets more units when the Net Asset Value (NAV) of the scheme is low and less units when the NAV is high. Rupee cost averaging - When an investor invests through SIP, he gets the benefit of rupee cost averaging.This is very beneficial for long term wealth creation. Regular investments in a scheme leads to compounding which means you earn interest on your interest as it is added to the original amount. Power of compounding - Investing in SIP allows the investor to take advantage of the power of compounding.There are many benefits of investing in a SIP. Systematic Investment Plan (SIP) allows you to invest a fixed amount at regular intervals in a scheme.
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