CHAPTER 1

INTRODUCTION TO SIP
1.1

Meaning of SIP
Systematic Investment Plan is an investment strategy wherein an investor
needs to invest the same amount of money in a particular mutual fund at
every stipulated time period. Investing in SIP enables an investor to take
part in the stock markets without actively timing them and he/she can
benefit by buying more units when the price falls and less units when the
price rises.
SIP works on the principle of regular investments. It is like your recurring
deposit where you put in a small amount every month. It allows you to
invest in a Mutual Fund by making smaller periodic investments
(monthly or quarterly) in place of a heavy one-time investment i.e. SIP
allows you to pay 10 periodic investments of Rs 500 each in place of a
one-time investment of Rs 5,000 in a MF. Thus, you can invest in an MF
without altering your other financial liabilities.
Simply put, a SIP is a 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 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 scheme 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 were the good
old days when our parents provided us with some pocket money, which
after expenditure we deposited in our piggy banks and at the end of a
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 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)
Today some Asset Management Companies (AMCs)/ Mutual Funds
houses also provide the ease and convenience of transacting online. They
have set their own online transaction platforms, where one can do SIP
investments, through the IPIN (Internet Personal Identification Number)
provided by the AMC and following the procedure as made available on
their websites. Thus you have a fewer hassles while investing as well as
tracking your investment dates.