What is SIP and how does it work? Features of SIP

What is SIP and how does it work

What is SIP and how does it work? Features of SIP

You have heard so much about SIP. Its great qualities are sung on TV, Newspaper, and hoardings. It seems that if you put money in SIP, then this day will increase fourfold in two days. Will it really happen? In this post, we will know what SIP is and how it Works. Meaning of SIP and full form. Meaning of SIP and Full Form

SIP’s full form is Systematic Investment Plan. After knowing its full form, you have understood a little bit about this investment approach. Investments in systematic means. you can also get Tax Saving Mutual Fund based on your Scheme.

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SIP Mutual Fund is a smart way to invest money. In this way, you keep a fixed amount in the difference of time. Like the investment of five thousand rupees on the 5th of every month. However, this plan facilitates putting weekly, daily and quarterly money in addition to monthly. But we get salary every month, so monthly SIP is more.

So SIP is a sensible way to invest money in a mutual fund because it has a habit of saving and a huge fund is easily created.

Read: 10 special points of tax saving mutual fund

How SIP Works

  • SIP has made investment easier in the mutual fund. Because now every month an investor gets invested in a mutual fund scheme with just one attempt. Now let’s see how it works.
  • To invest through SIP, you have to fill in the form of investment in the mutual fund.
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  • In the form, you choose SIP as a method of investment.
  • In the same form, you have to give the mandate of auto-debt. This will automatically deduct the fixed amount from your account every month.
  • After submitting the form, mutual fund company will withdraw money from your account on a fixed date.
  • This amount will be used to purchase units of the mutual fund scheme. The mutual fund unit will be bought at that day’s price.
  • Since the price of the mutual fund unit has been changing every day, you will never get one unit cheap and sometimes expensive. When it gets in cheap, the number of yanits will be high. If the unit is expensive, its number will decrease.
  • In this way, you will continue to get a mutual fund unit at different prices.

SIP Meaning and Working

Rupee-Cost Averaging

The most important thing about SIP is Rupee cost averaging. I.e. the purchase of mutual fund units at the average price. In fact, due to this fund, SIP is considered as a safe mode of investment. Because you will avoid buying a mutual fund at a very high price.

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As I told you that in SIP, you get units of a mutual fund at different prices. Sometimes it is expensive and sometimes it’s cheap. When it is cheap, you get more units of a mutual fund but when it gets expensive the units get less. Since you buy units at every price, therefore, the average price of the mutual fund unit is not too much for you or much less.

In this way, to get the mutual fund units at an average price due to SIP, Rupee Cost is called Averaging. It does not require timing for the right time of the stock market.

Of course, the best mutual fund scheme for long-term investment

Features of SIP

To understand the SIP, take care of the recurring deposit. Because in this way a fixed amount has to be deposited at fixed intervals. However, the interest rate in the recurring deposit is also fixed. Let’s know about the features of ASIP.

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  • You can invest a small amount every month.
  • SIP can be done for any period above one year.
  • The investment amount is already fixed in it. It does not change.
  • On a fixed date of every month, mutual fund companies withdraw a certain amount from your account.
  • The process of withdrawing money from the account and buying a mutual fund unit is automatic.
  • Since this is just an investment method, the installment of every month is a separate investment in itself.
  • In this post, we have given you the meaning of SIP and its features. Next, we will tell you about SIP type and best SIP. Keep coming Keep reading
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