If you hear the phrase “mutual funds SIP,” you may automatically think this is another type of mutual fund. Unfortunately, this is a common misconception among many newbie investors. However, an SIP, or Systematic Investment Plan, isn’t actually a type of mutual fund. Instead, it is an investing method for investing in mutual funds.
How to Invest in a Mutual Fund
There are two primary ways you can invest in a mutual fund. One way is with a one-time payment. If you want to invest into the fund directly, all you have to do is hand over a cheque and receive your units. The number of units you receive will be determined by several factors, including the entry load, which is the fees you pay, as well as the Net Asset Value.
Another option is with periodic investments, which are referred to as an SIP.
Periodic Investments
This is when mutual funds SIP comes into play. It means each month you are going to commit to making an investment of a certain amount. The number of units you get will depend on the price of the fund at the time each investment is made. This means some months you will receive more units and others you will receive less. For some, this is a preferred way to invest because it reduces the amount you invest initially and will help your portfolio to grow continuously.
If you are interested in a mutual funds SIP, it may be a good idea to work with a portfolio manager. They can help set you up with the desired arrangement and investment amount you are comfortable with.