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What is a SIP (Systematic Investment Plan):
In today’s world going to the gym and investing money have very similar outcomes, we always
convince ourselves we will start tomorrow, but the next day never comes. With little discipline and a
regular schedule, we soon realise that going to the gym becomes easy and also benefits us. Similarly
SIP a disciplined form of investing makes it easy to save money and keep our finances healthy.
How a SIP works??
SIP is a disciplined way if investing your money into Mutual Funds, where a fixed amount is invested
regularly on a specified date every month. This form of Investing could be termed as the RD of
Mutual Funds. Units are allocated based on the NAV of the Scheme. This regular purchase of units at
various prices according to market conditions facilitates the averaging of investments.
Why should you invest through SIP?
1. Rupee cost averaging
2. Compounded returns
3. It makes timing the market irrelevant
4. Can be started as low as Rs. 1000
Rupee Cost Averaging:
Investing through SIPs makes timing the market a myth. Volatility in the market works in your favour
as regular investments averages out the cost. For an example, with Rs 1000 you can buy 100 units at
Rs 10 per unit and later 200 units at Rs. 5 per unit. Your total investments now cost Rs.6.67 per unit.
But with gradual increase in the Unit price in the future, the investments as a whole would almost
always be profitable.
Compounded returns:
SIPs also help you in getting the benefit of compounding. Earning income on your investments is
surely a positive, but your income further earning more income is remarkable. The earlier and longer
your investments are the more in favour the effects of compounding will be. Let’s see the example
below
Value of Compounding
SIP start age 30 35
Monthly investment 10,000 10,000
SIP Stopping age 60 60
Your contribution 36,00,000 30,00,000
Assumed Compounded Returns 3,52,99,138 1,89,76,351
Starting SIP 5 years later has led to appr. 1.63 Cr loss)
* Returns assumed at 12%
Right SIP Amount:
Every SIP you start, must have a goal attached to it, duration and a designated corpus to be
collected. These three factors must be kept in mind when arriving at the right SIP Amount.
Start an SIP:
1. Decide the SIP amount for your Goal
2. Always invest Long term
3. Execute SIP in an equity fund
4. Review the performance regularly
5. Renew the SIP on closure
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