GeneralAdmin
Author
Understanding SIP
A Systematic Investment Plan, commonly known as an SIP, is a method of investing a fixed amount in a mutual fund scheme at regular intervals.
Depending on the facility offered by the mutual fund, investments may generally be made monthly, quarterly, or at another available frequency.
An SIP is a method of investing and not a separate investment product.
How Does an SIP Work?
Once an SIP is registered, the selected amount is periodically invested into the chosen mutual fund scheme. Units are allotted based on the applicable NAV according to the scheme's transaction rules.
Because NAVs fluctuate, the same investment amount may purchase:
- More units when NAVs are relatively lower
- Fewer units when NAVs are relatively higher
This regular investment mechanism is commonly referred to as rupee-cost averaging, although it does not eliminate investment risk or guarantee returns.
Factors to Understand Before Starting an SIP
Investors should consider:
- Investment objective
- Investment horizon
- Risk associated with the scheme
- Ability to continue periodic investments
- Applicable expenses
- Exit load, where applicable
- Tax implications
The amount and duration of an SIP should be considered in the context of the investor's own financial circumstances.
SIPs and Market Movement
SIPs continue investing at predetermined intervals irrespective of short-term market movements. However, investments remain exposed to market risk, and their value can increase or decrease.
Disclaimer
SIP does not assure a profit or protect against losses in declining markets. Mutual fund investments are subject to market risks. Read all scheme-related documents carefully.