So let's start with basics! What are Systematic Investment plans?
Most investors run this serious misconception that SIPs are a sort of mutual fund. Well, if you also took it that way, then don't be mortified! Systematic Investment Plans ( SIPs) are actually a mode to invest in mutual funds! It is a method through which you keep on investing in mutual funds.
More so like the recurring deposits, these are actually a commitment by the investor where he agrees to to invest a predetermined sum of money for a predetermined period of time, in mutual funds.
How does systematic investing work?
Let's assume that you are committed to invest Rs. 5,000 in a SIP every month. Now what happens is that this particular amount is used by the mutual fund company to buy units of stock from the market every month. this keeps on adding to your portfolio every month and thus with every subsequent investment, more and more units of different Net Asset value ( NAV) build up your portfolio.
So how does it help you? Well the logic is quiet simple. In falling market situations, you tend to add more units to your portfolio. Similarly in rising markets your risk is minimized. This tendency of giving the benefit of cost averaging makes, SIP the best option to scout for in volatile market situation where you cannot predict any thing.
Why? Well it's pretty logical! parting with Rs. 5000 every month might not pinch you but when you think of investing Rs. 60,000 at one go, it simply hurts. Ain't it? That is exactly why SIPs are easier than one time investments.
That's all for today.We will discuss more about SIPS in the successive posts that will be following this post!
No comments:
Post a Comment