A systematic investment plan (SIP) is an investment plan in which someone invests a set amount of money in a given investment at regular intervals. For example, someone could decide to put $100 United States Dollars (USD) into a mutual fund every month on the 15th. In the long term, systematic investment plans exploit cost averaging, in which the cost per unit of a security such as a share in a company goes down because the investor is buying at different times.
Some people can do this automatically. A number of investment accounts allow people to set up automatic payments which can be used for a systematic investment plan. People can also put their assets into the hands of a financial adviser who will follow directives related to how those assets should be used, including requests to invest set amounts at specific intervals. It is also possible to manage a systematic investment plan by hand.
In cost averaging, people buy whatever they can get for a set amount at regular intervals. The same amount may purchase 10 shares one month, nine shares the next, 12 the next, and so on. Over the course of time, the average cost paid per share should go down, making a profit for the investor. This is a long term investment plan. People may opt to put their money into stocks, bonds, shares in mutual funds, and other types of investments.
In some cases, a systematic investment plan can be linked with a retirement account. This can provide some tax incentives for the investor, such as not having to pay taxes on income earned on the investments until it is withdrawn from the retirement account. It may also be possible to access matching investment plans from employers which will double the size of the scheduled contributions. Some employers encourage their employees to explore several options for retirement savings and investments and may be willing to negotiate unusual agreements with individual employees by request.
It can be helpful to talk to a financial advisor before setting up a systematic investment plan. Financial advisers can provide advice and information as well as details about tax matters which may be useful to know about before beginning. For example, an investor can set up an account with tax benefits from the start or access matching benefits from employers immediately by establishing an approved account and filling out the paperwork.