NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Mutual Funds
Ms. Nair, aged 30, wants to invest a fixed Rs 10,000 every month in an equity scheme for 10 years, regardless of market level. Which feature of a Systematic Investment Plan (SIP) mainly helps her here?
The main benefit is rupee cost averaging: a fixed monthly amount buys more units when the NAV is low and fewer when it is high, lowering the average cost per unit. A SIP does not guarantee returns, remove market risk or give tax exemption.
- AIt guarantees a minimum return on the units
- BIt lets her buy more units when NAV is low and fewer when high, averaging costCorrect
- CIt removes market risk entirely
- DIt exempts redemption proceeds from tax
Explanation
A fixed amount invested periodically buys more units at lower NAVs and fewer at higher NAVs, producing rupee cost averaging. SIPs do not guarantee returns, eliminate market risk or provide tax exemption.
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