What Is a Systematic Investment Plan(SIP)?
A systematic investment plan (SIP) is a plan where investors make regular, equal payments into a mutual fund, trading account, or retirement account such as a 401(k). SIPs allow investors to save regularly with a smaller amount of money while benefiting from the long-term advantages of dollar-cost averaging (DCA). By using a DCA strategy, an investor buys an investment using periodic equal transfers of funds to build wealth or a portfolio over time slowly.
- A systematic investment plan involves investing a consistent sum of money regularly, and usually into the same security.
- A SIP generally pulls automatic withdrawals from the funding account and may require extended commitments from the investor.
- SIPs operate on the principle of dollar-cost averaging.
- Most brokerages and mutual fund companies offer SIPs
Types of Systematic Investment Plan (SIP)
Below are the types of Systematic Investment Plans:
This SIP allows you to increase your investment amount periodically giving you the flexibility to invest higher when you have a higher income or available amount to be invested. This also helps in making the most out of the investments by investing in the best and high performing funds at regular intervals
As the name suggests this SIP plan carries flexibility of amount you want to invest. An investor can increase or decrease the amount to be invested as per his own cash flow needs or preferences.
This SIP Plan allows you to carry on the investments without an end to the mandate date. Generally, an SIP carries an end date after 1 Year, 3Years or 5 years of investment. The investor can hence, withdraw the amount invested whenever he wishes or as per his financial goals.
Power of Compounding:
SIP is a disciplined way of investing and ensures you constantly strive to make your investments grow. The automation makes sure your investment grows as opposed to lump sum where you may forget to invest some time. The small amount you invest daily grows up to a large corpus due as a sum of your contribution and the returns compounded over the years.
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