Saving through SIP
SIP is not a scheme; it is an investment process. SIP is the short form of Systematic Investment Plan. It means that every month you save an amount regularly in a mutual fund scheme for a given period. It is similar to recurring deposit in a bank.
You can invest in any type of mutual fund through SIP. Normally, the minimum amount required to be invested in mutual fund schemes is Rs.5000. But in SIP account the minimum is Rs.500 for most of the schemes. The SIPs are made on a particular day of every month. You have provisions to automate it so that the money is deducted directly from the account on that particular day.
When you invest money, you buy units from the mutual fund you invest in. The units are allocated by dividing the investment amount by the NAV (net asset value) on that day for the scheme. If NAV is low on the date of allotment, you will get more units and if it is higher you will get lower number of units. This will help you average out the investment value irrespective of the market condition. SIP account is opened in the same way a regular mutual fund investment is made.
With respect to equity investment there is a saying that “Time in the market is important than timing the market”. Nobody knows when prices will go up or when they will come down. If you wait for the market to come down to invest, market may go up and you will lose a good opportunity. So as long as you are invested in equities you will be able reap the gains.
SIP is a good method to be in the market by regularly investing small amounts without considering the ups and downs of the market.
A financial plan will help you construct a good savings plan using mutual fund SIP's and other recurring savings schemes.