We all have one thing in common, i.e. to become financially strong. We can only fulfill this desire by working hard. Therefore, before going towards it, we need to know how to reach there, in order to make the path easier. Hence, the saving we are looking to make can be made through the source of SIP.
What is SIP?
SIP stands for Systematic Investment Plan. It is a way of investment in the mutual fund schemes. Under this best performing SIP, one is supposed to put the money in regular intervals. In this the money automatically gets deducted from the bank account and gets deposited into various investment schemes. It holds a bundle of benefits and provides the following advantages to an investor.
1. Small amount of payment: One can start putting money in various projects with just Rs. 500 or Rs. 1000, via SIP, which is not much of a burden.
2. Periodic Remittance: As per the functioning and nature of SIP, it needs the amount to be payable on a regular basis, say monthly. This way an investor can plan his monthly expenditure accordingly.
3. Debits the money automatically: Once the investor gets enrolled with the AMC to invest in SIP, he or she links his or her bank account with the same and the investment amount of money gets debited from the account automatically. This procedure is completely hassle-free.
4. The power of compounding: When we make an investment, we receive interest on some specific rate. It may be compound interest or simple interest rate. In SIP mutual funds, interest is fetched on the compound basis. This means, the interest is also earned on the principle amount. You get interest on interest. For example, if you invest Rs. 20,000 @ 10% simple interest for a period of 5 years. At the time of maturity, you will get an interest of Rs. 30,000, whereas in the case of compound interest, you will receive an amount of Rs. 32,210.20. In comparison, it is more beneficial for the investor.