What is an SIP and How Does it Work?

A systematic investment plan (SIP) is a way of investing in mutual funds. It allows you to invest in the fund of your choice periodically.

In this article, we will explain what a SIP is and how it works.

A SIP is one of the most convenient ways to build wealth for your future. It is an easy way to invest in mutual funds in a systematic manner. It requires no active management on your part.

Instead, based on a pre-decided time duration and amount, you invest in a mutual fund scheme. The fund manager will automatically invest your money in the schemes of the fund house, based on your investment goal and risk profile. In this way, you can buy units of various schemes depending on the requirement at regular intervals.

Here’s how SIPs work:

  • You pick the mutual fund that suits your needs – it can be a pure equity fund or a balanced fund.
  • You decide on the amount you want to invest every month in your investment plans. That depends on your risk appetite and capacity to manage your finances.
  • You set up the SIP, and it begins to deduct the amount from your account. This happens automatically; you don’t have to do anything every month.
  • Get periodic email updates on the performance of your investments, along with quarterly statements.
  • When you want to switch funds, you can easily do so online using the same password and login details.

Benefits of SIPs

  • The Power of Regular Contributions

SIPs are a great way to make your money work for you steadily instead of putting everything into one lump sum. A SIP offers a structured method for investing periodically. A SIP allows you to buy a fixed number of units on a pre-determined schedule. You can choose to invest a consistent amount every month or at regular intervals (weekly or even daily). You could also decide to increase your investment amount every year.

Furthermore, you can invest in equity mutual funds periodically via SIPs. This can allow you to benefit from the growth of companies. SIPs also allow you to invest a fixed amount at regular intervals in debt mutual funds, thereby reducing your risk and getting a better return if you plan to stay invested for a longer tenure.

  • SIPs can Help You Achieve Long-Term Goals

SIPs are one of the best options to achieve long-term goals like building a corpus for retirement, etc. It allows you to regularly invest in the mutual funds of your choice and build a significant corpus.

  • They Allow You to Diversify Your Investments

With the help of SIPs, you can invest in various mutual funds across sectors and companies. Therefore, you can diversify your portfolio and make it stable.

Go For SIPs to Build Wealth

SIPs are a great way to invest in mutual funds. You can invest regularly and build a significant corpus. Furthermore, it allows you to deal with the risk.

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