SIP - Systematic Investment Plan
SIP investment intro, advanatges, terminology and other information
All about SIP
Systematic Investment Plan (SIP) is a kind of investment method offered by Mutual Funds for recurring investments allowing investors to invest money periodically instead of lump sums amount in his/her choice of mutual funds. The frequency of investment is usually weekly, fortnightly or monthly. Deduction of SIP amount on due dates happens automatically from investors bank account. Amount of each SIP installment could be as low as Rs 500 or any higher amount
Using SIP investors can purchase units of a mutual fund schemes. Mutual funds schemes can be brodly categorised to following types : Equity Mutual Fund Schemes - Schemes which invests 65% to 100% of their money into equity means shares of companies.Debt Mutual Fund Schemes - Schemes which invest in government or corporates bonds / fixed deposits.Balanced Mutual Fund Schemes - Schemes which invest in mixed of equity and debt products.Gold Mutual Fund Schemes - Gold funds invest in gold. Each of above fund type have its own risk and retun potential. While SIP is considered a good method to recurring investment but one should carefully choose type of mutual fund scheme for SIP based on it's own risk profile, target investment duration and goal with help of a qualified financial advisors help.
SIP can be done filling mutual fund application forms. Forms are available online to download and fill or can be obtained from mutual fund offices or there sales channels. In mutual fund application form mutual fund scheme and amount is filled. For instruction for deduction of SIP amount on due dates from your bank account, a mandate is given in the form. Mutual fund companies has appointed distributors / agents and they provide services related to your investment. How does SIP workOnce you have applied for SIP and KYC is verifed, based on bank mandate SIP amount is debited from your bank ammount and mutual fund units are alloted in your selected fund scheme. Mutual funds units declare NAV daily based on value of their investment portfolio. This NAV is updated on their web site daily. Any mutual fund units purchase / redemption (sale) happens based on published NAV of the fund scheme. Online SIP can also be initiated by mutual fund websites.
SIP major advanatges are - Regular Savings - It makes habit of regular savings as once started amount is automatically debited from the investor bank account. Averaging In mutual funds having market related components like equity or gold, cost averaging is achived as SIP investments are regular interval irrespective of market conditions. Caution SIP are not as safe as bank FDs as SIP investments are made into mutual funds schemes and mutual fund investments are subject to market risk. These investment could also give negative returns. One should carefully evaluate scheme for SIP and should take consult from a qualified financial advisor.
SIP Amount - Recurring equal amount to be investment for every SIP due date to achive your target amount.Accumulated Amount - Expected value of the SIP investment after completion of investment period. This is typically your target amount that you want to accumulate for your investment goal. Return Rate - This is expected annual return rate on your investment. This is typically taken from long term industry averages and varies based on type of mutual fund e.g equity, debt or gold funds. During calculation of expected retun, one should use an average rate.
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