Question

Monthly investment plan for stocks is getting more popular in market . Analyze the characteristics, advantages and disadvantages of such investment plan with examples.
        

Answer 1

The key features of the SIP's are :

1. The investment that we do is regular and not Lump sum.

2. It helps us in indirectly averaging the cost of investment.

3. It doesn't put burden on the person of arranging funds lump sum.

The advantages are:

1. It helps us in disciplined Savings as it is a regular way of saving.

2. It provides a cushion as it is flexible. If we want to stop investing in SIP's we can easily.

3. It helps us earn long term gains and with periodic investment and thus we can encash the market returns over time.

The Disadvantages are:

1. Low returns as compared to markets.

2. The averaging is sometimes is done at higher rates thus it increases the risk of loss when market falls