Definition of Automatic Investment Plan

When a small amount of money is directly deducted from your (investor’s) bank account and invested in a mutual fund of your choice, the entire process is called an Automatic Investment Plan. It is also commonly called a Systematic Investment Plan. You can regularly purchase units of a particular fund at the market rate of the particular day of the buy. A predetermined amount will be deducted from your account at regular intervals. You can specify the interval as per your investment goals. SIPs can be daily, monthly or quarterly.

A major feature that differentiates a SIP from a lump sum purchase of mutual funds is that you buy the units at different rates, i.e. the NAV (Net Asset Value) of that particular day in a SIP.

Points to Remember:

• It is one of the most popular methods of investment in mutual funds, since it allows investors to skip having to individually move funds themselves.
• Either the funds are deducted from the paycheque or can be paid from a personal bank account.