Systematic Investment Plan
Systematic Investment Plan (SIP) is an investment vehicle offered by mutual funds to investors, allowing them to invest using small periodically amounts instead of lump sums. The frequency of investment is usually weekly, monthly or quarterly.
In SIP, a fixed amount of money is debited by the investors banks account periodically and invested in a specified mutual fund. The investor is allocated a number of units according to the then current Net asset value. Everytime a sum is invested, more units are added to the investors account.
The strategy claims to free the investors from speculating in volatile markets by Dollar cost averaging. As the investor is getting more units when the price is low and less units when the price is high, in the long run the average cost per unit is supposed to be lower.
SIP claims to encourage disciplined investment. SIPs are flexible, the investors may stop investing a plan anytime, or may choose to increase or decrease the investment amount. SIP is usually recommended to retail investors who do not have the resources to pursue active investment.
In India, a recurring payment can be set for SIP using Electronic Clearing Services (ECS). Some mutual funds allow tax benefits under Equity-linked savings schemes. This however has a lock-in period of three years. Thus, the final payment of SIP also must clear the lock-in before this scheme can be availed.
- "What is a Systematic Investment Plan? How does it work?". The Times of India. 29 October 2013. Retrieved 26 December 2014.