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Systematic Investment Plan: What and How

Mutual Funds are the type of Investment where funds are collected from many investors and collectively used to invest in company securities like stocks, bonds and fixed interest dividends by a middle man, often an investment bank or broker. They aim at an attempt to raise capital gains out of these sources and providing gain to the investors. Investors can be individuals, partnership firms or companies. Mutual Fund Systematic Investment Plan refers to the process where the investor has to invest a particular amount of money in the same mutual fund scheme, over a fixed period of time.

Investing in Mutual Funds includes investment in systematic Investment Plan except in cases of Liquid funds, cash funds and floating rate debt funds. All types of Debt Funds, Equity Funds, and balanced funds offer SIP. Systematic Investment Plan is recommended for all those investors who want to take active part in the share market without getting involved in day to day equity share market.

SIP helps in decreasing the average cost per unit of investment, through Rupee Cost Averaging method. This method helps nullify the extra profit or loss per unit in to an average of the fixed period of time. The method also has the facility for the investor to pre-state for how long he wants to invest that is, one year, two or more, after which the scheme will automatically be forfeited.

Systematic Investment Plan also provides some tax benefits. If we invest in the scheme for ten months or the minimum number of months whichever is lower, then Capital Gain Taxes are exempted. If we invest more than that, Taxes are to be paid after the minimum period of investment is over.

Mutual Fund Systematic Investment Plan is thus a good way to invest in stocks, dividends and mutual funds. A broker or investment bank can have the authority to set up an account for an individual, firm or company solely for this purpose directly with the companies that the investor chooses or is advised to invest in.