AUTOMATIC INVESTMENT PLAN Meaning and
Definition
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An automatic investment plan (AIP) refers to a systematic investment strategy where an individual or investor sets up a pre-arranged agreement with a financial institution or brokerage firm to automatically invest a fixed amount of money at regular intervals into a selected investment vehicle. This investment plan is typically used for long-term goals such as retirement planning, education funding, or wealth accumulation.
The key feature of an automatic investment plan is the recurring contributions made automatically at predetermined intervals, which can be weekly, biweekly, monthly, or quarterly. The investor provides instructions to the financial institution specifying the amount to be invested and the investment option or fund where the money should be allocated. Once set up, the AIP operates on an automated basis, deducting the agreed upon amount from the investor's bank account and allocating it to the chosen investment option without requiring manual intervention.
The main purpose of an AIP is to practice disciplined and regular investing, irrespective of market fluctuations or investor emotions. By investing a fixed amount at set intervals, an AIP promotes dollar-cost averaging, allowing investors to buy more shares when prices are low and fewer shares when prices are high. This strategy helps to smooth out the impact of market volatility on an investment portfolio.
Overall, an automatic investment plan offers convenience, consistency, and discipline to investors seeking a structured approach to their investment journey. It helps individuals to build wealth gradually over time while minimizing the impact of short-term market fluctuations on their investment returns.
