SIP seems to be the buzzword today in the investment sector.What is it??
For starters,it stands for Systematic Investment Plan. Now, Ain’t that simple.lol.The truth is that it is very important to understand the knitty-gritty’s of an SIP
SIP is basically an investment vehicle which helps small budget investors to benefit the stock markets even without enough resources(money).How??
SIP is the brain child of Mutual Fund Companies trying to woo the common man to enter the equity market.Through SIP,an investor can decide on a small fixed amount starting as low as rs.100/month to be invested with the particular mutual fund scheme.Now,100 rs. ain’t a big amount to part with.But,then a 100 rs a month wont make any1 rich:-)
It wont but it sure takes us closer to being rich in more ways than one.
1. As is always said, “
2. Now,a 100 rs a month looks a meagre amount but then , “BOOND-BOOND SE SAGAR BANTA HE”.
3.Since,mutual funds are comparatively safer investment vehicle,investing in an SIP becomes even more safer since we are not putting huge lump sums at the same time.
Enough said,or else i am gonna make SIP the best cash-cow in the world.
But,yes it sure can be, only if we put in our minds too into it with our money
How an SIP works??
In an SIP,as said above a fixed amount is debited from the investors account to be invested into buying the fund units in a particular fund.
But,if SIP is in a way investing in equity markets, how can it be safe given the markets being so volatile.Here’s why?
Let’s take a practical example,
say i take an SIP in ABC Fund for a rs.100 a month for 12 months.Now,lets assume the to be at rs.10 per unit at the time of application(say august).
So,for august,i get 10 units of that fund.
Now,lets see two scenarios
a)Stock Markets are Down—- Oh Boy!!This sounds hellish for the invested money.Sure it is ,But an SIP scores some good brownie points here.
IF the markets are down in September and lets say that the of my fund drops to rs.5(should Neva happen:-)). What this means is that for the same 100 rs ,this time i get 20 units of the same fund.So, i have more units and my losses are somewhat negated.
b)Stock Markets are UP—-Need i say anything:-) If the stock markets are moving upwards,so is the of my mutual fund.And, i am getting richer by the day:-)
So,basically an SIP will help you survive the stock market volatility in a better way since all our money is not invested at the same time.This is as good as timing the stock market.
But,then the success of an SIP solely depends on the mutual fund management company.If the Company is not managing the fund properly,all we will be piling up is lots and lots of units of the fund which will Neva have better NAV.
So,choose and SIP with as much a caution as any other investment tool.
If u have any doubts related to SIP please feel free to ask,and i will be glad to help:-)
For further knowledge and to invest in SIP’s, please go through
,the Indian bible for investments:-)