Stock markets in recent years have very volatile and many investors have done the mistake of buying at highs in the year 2008 and selling at lows in the year 2009. To overcome that situation one should start investing in stock market through SIP. Systematic Investment Plan also known as SIP is an investment approach where an investor who is willing to invest into the stock markets can invest through mutual funds. However it is different in the sense that under SIP one doesn’t need to invest whole amount at one go, rather one has to invest periodically which may be monthly or quarterly. For example if one has $12000 which he or she wants to invest into the stock market through mutual fund but he is not sure what is the right time to put that money, then he may take SIP under which he will invest $1000 each month for a year, therefore he does not have to worry about stock market fluctuations.
The main advantage of SIP is that since a fixed amount is invested on a regular basis, one gets more number of units in a falling market and fewer units when the market is on the rise and therefore the investor does not have to face the risk of buying too much when market is high and buying very little when stock market is crashing. SIP are best when one has a time frame of attest 3-5 years because it generate returns only over a long period, it is not for those who want to make short term gains in the stock market.