Thinking of investing in stocks, well do not jump with the entire cash into the stock market. Take the other way round and start investing systematically in stocks. Doing investment step by step in stock is the most preferred way of wealth accumulation.
The term “Systematic Investment Plan” or in short SIP is the main subject of discussion in this article. When it comes to investing in the stock market, investors find it tough to decide when and at what level they should enter the market? With the help of Equity Systematic Investment Plans, investors don’t need to time the market. The instrument is about making investments in a disciplined process by averaging the cost of investments. It highlights the concept of taking small little steps to reach the final destination.
Systematic Investment Plan
Investors need to put in a small amount of money at regular intervals in Systematic Investment Plan. BY averaging cost of investments, they can deal with the risk of market volatility. SIP allows investing in the market with a small amount of money. There are two types of systematic investment plans:
Amount Based SIP
: In the amount based SIP it is the investor who decides the amount to be invested in selected stock at pre-defined intervals. The amount is fixed which is divided by the market price of the share to calculate the quantity of shares to be bought every time.
Quantity based SIP
: In quantity based SIP the investors decide the fixed number of shares to be bought at pre-defined frequency.
The investment frequency in both cases is flexible and can be decided by the investor as per its preference. It can be daily, weekly, fortnightly or monthly as per the individual preference. Once investors have decided to opt for SIP, they should invest in those companies stocks which have proven track record. Investors who don’t have enough time to track the market can also benefit from Systematic Investment Plan.