A SIP (Systematic Investment Plan) in Mutual Fund more popularly known as SIP, is a facility offered by mutual funds for investors to invest in a disciplined manner. The SIP facility allows an investor to invest a fixed amount of money at pre-determined intervals in the selected mutual fund scheme.
The minimum amount of money that an Investor can invest in SIP is Rs. 100 and the payment can be made weekly, monthly, quarterly,half-yearly or yearly basis. Through investing in a time-bound manner in SIP the Investor stands to benefit in the long term because of the average cost of compounding without worrying about market dynamics.
How to Apply for SIP in Mutual Fund?
Investors are required to fill out an application form and SIP registration cum mandate form, on which they need to choose the name, amount, frequency and SIP date of their plan at which the amount will be deducted from their bank account. Check will be banked by AMC and invested in the chosen fund.
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Benefits of Investing in SIP in Mutual Fund:
- Power of Compounding: When you invest regularly through SIP and invest for a long period, the compounding effect increases the profit. The compounding effect ensures that you not only make a profit on your principal amount (the actual investment), but also on the profit on the principal amount, that is, your money increases over time because the money you invest earns a return. And returns also earn returns.
- Convenience: You can invest in a disciplined and phased manner using SIP. It allows you to start your investment with less than Rs 500 only.
- Higher Returns: Compared to traditional Fixed Deposits, ELSS offers higher returns to beat inflation in an effective way.
- Rupee Cost Averaging: The equity market is volatile in nature and when you invest SIP, you will buy more number of units during the recession and the number of units in the booming market will be less and as a result you will reduce the cost per unit.
- Acts as Emergency Fund: With one-click withdrawal facility SIP can act as an emergency fund for potential contingencies (such as a medical crisis or job loss etc.) which eases your mind.
- Be a disciplined Investor: A SIP investment will make you more disciplined in matters of managing your finances. With the option of automatic payments means that you do not have to remember every month.
- Flexibility: It is very easy to initiate or close a SIP and there is no penalty for closure.
- Large choice of Schemes: You get a wide choice of mutual fund schemes and you can invest in matching your risk profile, investment objective or financial goals.
- Helps to achieve long term goals: SIPs help you achieve your long-term goals, such as – retirement, child higher education and their marriage or similar. You can actually set a target amount for your goal and invest every month over a period of time to achieve the same.