What is a 'systematic investment plan (SIP)'?

A systematic investment plan (SIP) is best described as a disciplined investment strategy that involves investing a fixed amount regularly in mutual funds or stocks. This approach allows investors to contribute a set amount of money at regular intervals, which can help in averaging out the cost of investment over time. By investing consistently, irrespective of market conditions, investors can benefit from dollar-cost averaging. This method reduces the impact of volatility, as the same amount of money buys varying quantities of the investment depending on its price at the time of purchase.

The regular investment style not only encourages a habit of saving and investing but also makes it easier for investors to build wealth over time without the need to time the market. The disciplined nature of SIPs can lead to more effective long-term investment strategies compared to lump-sum investments, which can expose an investor to greater market risk if invested at an inopportune time.