SIP:- Systematic Investment Plan
The simplest way to understand the basic workings of SIPs is to imagine a child and a piggy bank. The child's deposits’ a certain amount at certain intervals and before he knows it, the contents of the piggy bank have built up to a respectable amount.
In the same way, a systematic investment plan deposits a certain amount of money, which could be as low as ₹500 or as high as the investor wishes, at certain fixed intervals of time, which could be a week, a month, an annual quarter, etc., and allows this amount to build up over time. The biggest difference between the piggy bank and the SIP, however, is the fact that SIPs don’t just keep the money aside for you, but also invest that money into profitable businesses and give you a share of the earnings. Also, with every periodic investment, the amount being reinvested keeps growing larger - which means that returns on the investments grow larger as well.
It’s up to the investor to decide whether he/she wishes to receive these investment returns in a periodic format, or as a lump sum at the end of the SIP’s tenure when the investment matures. Of course, the detailed workings of a systematic investment plan that invests in Mutual Funds are a bit more complex and they sometimes speak a different language, but understanding the different types of SIP can help patient investors reap massive rewards.
