SIP is a method of investing in a mutual fund by paying a fixed sum, at predetermined intervals (monthly, quarterly, etc.), into the fund. It helps investors save small amounts and accumulate wealth in the long term.
In SIPs, you invest fixed sums at regular intervals and thus purchase more units when the prices are low and less units when prices are high. This brings down the average cost of the units and there is no need to time the markets.
Compounding is where returns made on an investment are reinvested in order to generate subsequent returns of their own. Even investing small amounts regularly helps the investor accumulate a sizeable corpus through this compounding effect.
SIP is a disciplined way of investing your funds as it works on the principle of regular investing. We tend to save some amount but fail to invest the same. SIP channels ones’ savings into investments in a timely and disciplined manner without any extra hassle.
Investing through SIP is extremely convenient. One can enroll for the SIP by opening an account and providing an OTM (One Time Mandate) for periodic investments based on one’s convenience.