Systematic Investment Plan
What is NAV in SIP?
In the context of Systematic Investment Plans (SIP), Net Asset Value (NAV) refers to the price at which investors can buy or sell mutual fund units. Here’s what you need to know about NAV:
– NAV represents the current market value of a single mutual fund unit.
– NAV is updated daily after business hours for most mutual funds.
– All mutual fund trades, including SIP investments, are executed at the current NAV.
– Each time you invest through a SIP installment, the current NAV becomes your cost of purchase.
In other words, NAV is the price at which your SIP investment is transacted. By investing through SIP, you’ll be buying mutual fund units at the prevailing NAV, which may fluctuate daily based on market conditions.
Benefits of Investing in SIP
Systematic Investment Plans (SIP) offer several advantages over lump sum investments. Some of the key benefits include:
1. Disciplined Investing: SIP helps you invest regularly, without requiring extensive financial knowledge or market analysis. With automatic deductions, you can sit back and relax, knowing your investments are growing steadily.
2. Rupee Cost Averaging: SIP allows you to benefit from market volatility through rupee cost averaging. By investing a fixed amount regularly, you can:
- Buy more units when the market is low
- Buy fewer units when the market is high
- Lower your average cost per unit over time
Additional benefits of SIP include:
1. Reduced Timing Risks: By investing regularly, you can reduce the impact of market fluctuations on your investments.
2. Flexibility: SIP offers flexibility in investment amounts and frequencies, allowing you to adjust according to your cash flow needs.
3. Long-term Wealth Creation: SIP helps you build wealth steadily over the long term, thanks to the power of compounding.
By investing in SIP, you can make the most of your investments, without requiring extensive financial expertise or market knowledge.
1. You apply for one or more SIP plans, choosing the amount and frequency of investment.
2. The selected amount is automatically debited from your bank account at the predetermined interval (e.g., monthly).
3. The debited amount is invested in the chosen mutual fund scheme.
4. Units are allocated to your account based on the mutual fund's Net Asset Value (NAV) at the end of the day.
5. With each SIP installment, additional units are added to your account, based on the prevailing market rate.
6. As the investment grows, so does the amount reinvested, potentially leading to higher returns.
7. You have the flexibility to receive returns at the end of the SIP tenure or at periodic intervals, as per your preference.
By automating your investments, SIP helps you build wealth steadily, without requiring a large upfront investment."
Suppose you have set aside ₹1 lakh to invest in a mutual fund. You have two options:
Option 1: Lump Sum Investment
Invest the entire ₹1 lakh in the mutual fund at once.
Option 2: Systematic Investment Plan (SIP)
Invest a fixed amount of ₹500 every month for a specified period, say 20 months.
With SIP, ₹500 will be automatically deducted from your account and invested in the mutual fund on a fixed date every month. This way, you'll invest a total of ₹1 lakh (₹500 x 20 months) over a period of 20 months.
By choosing SIP, you'll be investing a fixed amount regularly, rather than investing a large sum at once. This approach can help you:
- Reduce timing risks
- Benefit from dollar-cost averaging
- Invest consistently, without market volatility affecting your investment decisions
1. Systematic Investment Plan (SIP): A regular investment plan where you invest a fixed amount at fixed intervals.
2. Top-up SIP: Enhance your investment amount periodically, allowing you to invest more when you have a higher income or available funds. This feature helps you maximize your investments by allocating more funds to high-performing schemes.
3. Flexible SIP: Invest a variable amount based on your cash flow needs or preferences. This plan offers flexibility to increase or decrease the investment amount as per your convenience.
4. Perpetual SIP: Invest without a fixed end date, unlike traditional SIPs which have a mandate date (e.g., 1 year, 3 years, or 5 years). With Perpetual SIP, you can withdraw your investment whenever you wish or as per your financial goals.
Choosing the right SIP type can help you make the most of your investments. Consider your financial goals, risk tolerance, and cash flow needs before selecting a SIP plan."
