Systematic Investment Plan, as the name suggests stands for, systematic method of investing a fixed amount, on a regular basis in a mutual fund scheme. It's just a same concept, when you buy a house or a car on installment you divide your payment into regular installments, similarly you can save money in installments by way of SIP for building a wealth over a period of time.
It's like a saving plan which accommodates regular investment on a monthly, quarterly or half-yearly basis. It is the building block that will help you achieve your goal over a period of time.
Advantages of SIP:
Power of compounding: Value of money depreciates over a period of time. SIP gives you benefit to set aside certain small sum of money on regular basis so as to cope up with the general price rise. It helps you to start investing at an early age so as to meet out the greater expenditures of your life in later stage.
Rupee cost averaging: SIP helps you to invest a fixed amount every month, that minimises average cost of your overall investment. You would get more units when market is reeling under a bearish moment and fewer when the market is bullish. This allows your investment to appreciate and sustain good returns over a period of time.
Low investment: If you plan to make a one-time investment in a mutual fund scheme, the minimum investment you are required to make is Rs 5000; wherein in SIP, minimum investment required is Rs. 500 per month over a period of few months.