How Does SIP Work?
SIPs operate on the principle of regularity and compounding. Here’s how they function:
- Predefined Amount and Period:
- When you start an SIP, you commit to investing a fixed sum (e.g., 2000, 5000, or 500) at regular intervals.
- Units Allocation:
- Each time you invest, the amount is used to purchase units of the chosen mutual fund scheme based on the prevailing Net Asset Value (NAV).
- Rupee Cost Averaging:
- SIPs help you benefit from market volatility through a concept called rupee cost averaging. When prices are low, you buy more units; when prices are high, you buy fewer units. Over time, this averages out your cost of investment.
- Compounding Effect:
- SIPs leverage the power of compounding, where your returns generate further returns over time. The earlier you start, the greater the compounding effect.
- Auto-Debit Facility:
- SIPs are automated through an auto-debit feature from your bank account, ensuring consistent investment without manual intervention.
- SIPs are automated through an auto-debit feature from your bank account, ensuring consistent investment without manual intervention.