A few days back someone asked on Twitter to explain SIP in the simplest way possible. And this what you read right down there was my answer.
We often have this confusion on why do we keep investing the same amounts every month or every quarter or every week in an Investment regardless of the situation in the markets, (whether the markets are up or down), we keep investing the same amount even if we can invest all amounts in one go...
But do you know why we do that?
SIP is a word that we have been listening since years and some even have the perception that SIP is investing in Mutual Funds every month but no! SIP is a way of systematically investing your money in ANY investment vehicle - stocks/FD/gold
SIP is actually Dollar Cost Averaging or Rupee Cost Averaging which is nothing but dividing your amount of investment into numerous periods to get the benefit of different prices.
Consider this, what if I tell you that the market is facing a correction right now and then it will go up in the future, so invest everything that you have right now in equity so that you can get the benefit when the market rises...
But you might ask me?
What if it falls more further?
What if I buy it when it is in the final fall?
And nobody exactly knows what would be the exact low of the downtrend.
Similarly, what if I tell you to buy IRCTC stock right now?
You might tell it is costly now.
I'll buy it when it comes down...
But what if it never comes down and keeps on going further?
Then you might feel again that it is costly, I'll buy it later.
And this is where SIP comes to your rescue. SIP helps you to keep on investing similar amounts in an investment regardless of how costly or how cheap it might seem at the present moment..
It rides away the uncertainty of price movements and keeps on investing similar average amounts for you.
It helps you skip the guessing game to decide the highs and lows of the markets.
It helps you accumulate more units when the cost of assets is low and less units when the cost is high.
SIP in true sense is just like the love of mothers...
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