WHAT IS SYSTEMATIC INVESTMENT PLAN (SIP)?
How to start with SIP investment?
HOW DOES SIP WORK?
- Effect of compounding
As not in the case of simple interest, compounding effect makes the interest earned added in the base capital and the following interest is computed on the new increased capital. Hence, the exponential growth of money is the outcome of compound interest. The effect of compounding interest increases with the increase in tenure of the investments.
- Rupee cost averaging
Since the volatility remains in the market, it becomes difficult for investors to comprehend the ideal time to invest and enter into the market. Therefore, rupee cost averaging helps remove the confusion. Since investors invest regularly, their money is expected to yield more units when the price is low and few units when the price becomes high. This may help investors to acquire a lower average cost per unit during the volatility.
BENEFITS OF SIP
- Flexible and affordable investment
A SIP investment can be started with a minimum amount, thus making it affordable for every kind of investor. However, once invested, you can always increase the value of your investments with the increase in earnings over a period of time.
- No charges levied on entry and exit
You can start investing in SIP with no extra charges. Moreover, once invested but realizing at a later point that it is not for you or incurring loses, you can choose to opt out anytime you want without having to pay any sort of penalty.
- Saves time
Investors can choose Electric clearing service (ECS), wherein bank will automatically debit the amount at regular intervals and hence saves your time.
Investors do not need to keep the track of market trends or the latest news as the market experts are there to carry out all those operations.
- Long term gains
Rupee cost averaging and the effect of compounding ensures higher returns over a long period of time.