What is Systematic Investment Plan (SIP)?
SIP stands for Systematic Investment Plan, which is a method of investing in mutual funds wherein an investor can invest a fixed amount of his choice at fixed intervals (generally monthly) in any scheme of his choice. Unlike a lumpsum investment, you spread your investment over time with a SIP. Therefore, you don’t need to have a large amount of money to get started with your mutual fund investment through SIPs.
With SIP, you can get started with your investment with a small amount and reap relatively significant returns in the long run. It’s simple and the most convenient way of investing in mutual funds.
Another significant benefit is that it builds financial discipline which is the key to creating long term wealth.
How does a SIP work?
Every time you invest in a mutual fund scheme through SIP, you purchase a certain number of fund units corresponding to the amount you invested. You don’t need to time the markets when investing through SIP as you benefit from both upward and downward market trends.
As you invest a fixed amount at certain frequency, you get more fund units when the markets are down and fewer units when the markets are surging. Hence, the cost of purchase may vary from one SIP instalment to another. Over time, the cost of purchase averages out and turns out to be on the lower side. This is known as rupee cost averaging. This benefit is not available when you invest via lumpsum.
SIP Calculator : Growth of Investment Find the future value of your monthly/quarterly SIP investment.
Rate of Return
7%Monthly SIP
5,000Total Investment Amount
10,00,000Investment Growth
5,00,000Total Investment Value
15,00,000Absolute Growth
1.5XTotal Investment Amount
10,00,000Rate of Return
7%Total Investment Value
15,00,000Investment Growth
5,00,000Investment Duration
10 yearsAbsolute Growth
1.5XDisclaimers:
The calculator alone is not sufficient and shouldn't be used for the development or implementation of an investment strategy. This tool is created to explain basic financial / investment related concepts to investors. The tool is created for helping the investor take an informed decision and is not an investment process in itself. Mutual Fund does not provide guaranteed returns. Investors are advised to seek professional advice from financial, tax, and legal advisors before investing.
What are the benefits of investing via SIP?
Discipline in Investing
When you commit to investing a fixed amount at a certain frequency and follow through with discipline, you have a better chance of building long-term wealth. This is the single most important factor in building long-term wealth.
Freedom to Choose
You can start a SIP with an amount as low as INR.500 and even decide the frequency (Eg. monthly, quarterly, etc.) of investing.
Chance to Achieve Long-Term Goals
If you start a SIP and continue with it over the long-term you can achieve any life goal such as buying a house, buying a car, securing your child’s future and even early retirement. But, it is extremely critical to exhibit discipline and continue with your SIP irrespective of different market scenarios.
Rupee Cost Averaging
When you invest a fixed amount at certain frequency, you get more fund units when the markets are down and fewer units when the markets are surging. Over the long-term, the cost of purchase averages out and turns out to be on the lower side. This is Rupee Cost Averaging. This benefit is not available when you invest via lumpsum.
Power of Compounding
Compounding is nothing but a process wherein your earnings (growth of investment) overtime are re-invested to generate additional earnings. This, over long-term contributes significantly to the growth of your investment.
Scheme of your Choice
You can start a SIP in any fund of your choice. Choose from Equity Funds (Large Cap, ELSS, Flexi Cap, etc.), Hybrid Funds (Balanced Advantage, Equity Hybrid, Dynamic Equity, etc.), Debt Funds, Index Funds and Fund of Funds (FoF). You may also choose to invest in more than one fund.
Here are some Frequently Asked Questions about SIP?
- Generally, SIP is perceived as a type of mutual fund/scheme. However, SIP is a way of investing in a mutual fund/scheme not a fund or a scheme. Investments via SIP can be done periodically at regular intervals like monthly, quarterly, etc.
- There is no specific right date to choose for your SIP and it can be as per your convenience. In the long-term the date of your SIP investment has very little significance.
- There is general misconception that SIP can be started only in Equity mutual funds. However, in reality SIP can be started in Debt and Hybrid funds as well along with Equity mutual funds. The decision to start a SIP in any category of mutual fund depends on the investment horizon and the risk appetite an investor is willing to take.
- One cannot predict when the markets will be up or down. And one of the many benefits of SIP is that it provides rupee-cost averaging, due to which it does not matter if the markets are up or down. The most important thing to remember is to stay invested for a long-term period to increase the potential to build wealth over a period of time.
- Your bank account will be debited automatically as per your pre-decided SIP date with the auto-debit feature. However, there is no penalty in case of whatever reason the funds are not available in the bank account and it doesn’t get debited and you miss one SIP date. Your SIP account remains active even if you miss one SIP date but after multiple misses, it may get cancelled.