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.