What is SIP ?

A Systematic Investment Plan or SIP is a smart and hassle free mode for investing money in mutual funds. SIP allows you to invest a certain pre-determined amount at a regular interval (weekly, monthly, quarterly, etc.). A SIP is a planned approach towards investments and helps you inculcate the habit of saving and building wealth for the future.

A SIP is a flexible and easy investment plan. Your money is auto-debited from your bank account and invested into a specific mutual fund scheme.You are allocated certain number of units based on the ongoing market rate (called NAV or net asset value) for the day.

Every time you invest money, additional units of the scheme are purchased at the market rate and added to your account. Hence, units are bought at different rates and investors benefit from Rupee-Cost Averaging and the Power of Compounding.

With volatile markets, most investors remain skeptical about the best time to invest and try to ‘time’ their entry into the market. Rupee-cost averaging allows you to opt out of the guessing game. If are a regular investor, your money fetches more units when the price is low and lesser when the price is high. During volatile period, it may allow you to achieve a lower average cost per unit.

Other Benefits of Systematic Investment Plans

Disciplined Saving – Discipline is the key to successful investments. When you invest through SIP, you commit yourself to save regularly. Every investment is a step towards attaining your financial objectives.

Flexibility – While it is advisable to continue SIP investments with a long-term perspective, there is no compulsion. Investors can discontinue the plan at any time. One can also increase/ decrease the amount being invested.

Long-Term Gains – Due to rupee-cost averaging and the power of compounding SIPs have the potential to deliver attractive returns over a long investment horizon.

Convenience – SIP is a hassle-free mode of investment. You can issue a standing instruction to your bank to facilitate auto-debits from your bank account.

SIPs have proved to be an ideal mode of investment for retail investors who do not have the resources to pursue active investments. There is no single mutual fund to call as ‘best fund’, as there are many well performing funds over a longer period of 5 to 10 years and invested through SIP mode.

SIPs have proved to be an ideal mode of investment for retail investors who do not have the resources to pursue active investments. There is no single mutual fund to call as ‘best fund’, as there are many well performing funds over a longer period of 5 to 10 years and invested through SIP mode.

Generally SIP returns of good mutual funds have been between 12-18%. The actual returns might differ for different investors. But for this discussion, let’s be conservative and assume the average SIP returns in 5, 10, 15 or 20 years to be 12% per annum.

Here is what a Rs 10,000 per month SIP in mutual funds can do over the years:

  1. 5 year SIP of Rs 10,000 monthly = Rs 8.05 lakh
  2. 10 year SIP of Rs 10,000 monthly = Rs 21 lakh
  3. 15 year SIP of Rs 10,000 monthly = Rs 41.93lakh
  4. 20 year SIP of Rs 10,000 monthly = Rs 75.6 lakh
  5. 25 year SIP of Rs 10,000 monthly = Rs 1.29crore
  6. 30 year SIP of Rs 10,000 monthly = Rs 2.1 crore

Wow, on a mere investment of 36 lakh rs in the course of 30 years with easy installments you will be able to amass 2.1 crore rs.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s