An SIP is a method of investing a fixed sum, on a regular basis, in a mutual fund scheme. It is similar to regular saving schemes like a recurring deposit. An SIP allows one to buy units on a given date each month, so that one can implement a saving plan for themselves. A SIP can be started with as small as Rs 500 per month in ELSS schemes to Rs 1,000 per month in diversified equity schemes.  

Buy low sell high, just four words sum up a winning strategy for the stock markets. But timing the market is not easy for everyone. In timing the markets one can miss the larger rally and may stay out while the markets were doing well. Therefore, rather than timing the market, investing month after month will ensure that one is invested at the high and the low, and make the best out of an opportunity that could be tough to predict in advance.  

Why SIP?  

u      Mutual Fund investments are managed by qualified and experienced professionals who have the expertise of investment techniques, backed by dedicated investment research team 

u      You can purchase scheme units at a lesser cost as most of the Asset Management Companies (AMCs) charge less “entry load” (for some scheme even NIL) for SIP investments, as compared to normal purchases in the scheme.

u      SIPs make the volatility in the market work in your favour. Since a fixed amount is invested more units are purchased when a schemes NAV is low and fewer units when the NAV is high. As a result, over a period of time these market fluctuations are generally averaged. Thus the average cost of your investment is often reduced.

u      Since you invest regularly, it makes you disciplined in your savings, which leads to wealth accumulation.  

The SIP reduces the average purchase cost, even in volatile markets with relative ease. When you invest a fixed amount every month, the number of mutual fund units you actually buy depends on their market price. Therefore, with the money you invest each month, you can buy less units when the market moves up and more units when the market moves down.  

This means you are averaging out your cost. If you invest Rs 1000 a month at a price of Rs 20 a unit, you will have bought 50 units (1000/20). But at a price of Rs 10 per unit, you will have bought 100 units (1000/10). Investing a fixed sum regularly means averaging out the cost, as you get fewer units when the price goes up and more when the price goes down.