Simply put, a SIP refers to Systematic Investment Plan which is mode of investing in mutual funds in a systematic and regular manner. The method of investing is similar to your investment in a recurring deposit (RD) with a bank, where you deposit a fixed sum of money (into your recurring deposit account), but the only difference here is, your money is deployed in a mutual fund scheme (equity schemes and / or debt schemes) and not in a bank deposit, and hence your investments (in mutual funds) are subject to market risk.
A SIP enforces a disciplined approach towards investing, and infuses regular saving habits which we all probably learnt during our childhood days when we used to maintain a piggy bank. Yes, those good old days where our parents provided us with some pocket money, which after expenditure we deposited in our piggy banks and at the end of particular tenure we saw that every penny saved became a large amount.
SIPs too work on the simple principle of investing regularly which enable you to build wealth over the long-term. In case of SIPs, on a specified date which can be on a daily basis, monthly basis, or on a quarterly basis, a fixed amount as desired by you, is debited from your bank account (either through a ECS mandate or through post-dated cheques forwarded) and invested in the scheme as selected by you for a specified tenure (months, years).
Easy and convenience of transacting
Today some Asset Management Companies (AMCs) / mutual fund houses / robo-advisory platforms also provide the ease and convenience of transacting online. They have set up their own online transaction platforms, where one can do SIP investments by following the procedure as made available on the websites.
So, you have fewer hassles while investing as well as tracking your investment dates.
Mutual Fund investments are subject to market risk. Please read the offer document carefully before investing