The full form of SIP is Systematic Investment Plan. It is actually a weekly, monthly, quarterly or half-yearly installment investment in the chosen mutual fund scheme, just like installment payment to a recurring deposit in a bank.
SIP is a method of investing a fixed sum, regularly, in a mutual fund scheme. SIP allows one to buy units on a given date each month so that one can implement a saving plan for themselves. The biggest advantage of SIP is that one need not time the market. In timing the market, one can miss the larger rally and may stay out while markets were doing well or may enter at a wrong time when either valuation have peaked or markets are on the verge of declining. Rather than timing the market, investing every month will ensure that one is invested at the high and the low, and make the best out of an opportunity that could be tough to predict in advance.
An investor can invest a pre-determined fixed amount in a scheme every month or quarterly, depending on his convenience through post-dated cheques or through ECS /auto-debit facility. An investor needs to fill up an application form and a SIP mandate form on which they need to indicate their choice for the SIP date (on which the amount will be invested). Subsequent SIPs will be auto-debited through a standing instruction given or post-dated cheques.
SIP helps the investors to average the market with equal investments during the ups and down. In addition, it helps the small investors to accumulate wealth by investing a small amount of money in every week, month or quarter.
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