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What-is-SIP
Publishing Summary 1
All About SIP
What is SIP?
A Systematic Investment Plan (SIP), more popularly known as SIP, is a facility offered by mutual funds to the investors to invest in a disciplined manner. SIP facility allows an investor to invest a fixed amount of money at pre-defined intervals in the selected mutual fund scheme. The fixed amount of money can be as low as Rs. 500, while the pre-defined SIP intervals can be on a weekly/monthly/quarterly/semi-annually or annual basis. By taking the SIP route to investments, the investor invests in a time-bound manner without worrying about the market dynamics and stands to benefit in the long-term due to average costing and power of compounding.
How does SIP work?
Investors can invest a pre-determined fixed amount in a scheme weekly, monthly or quarterly, depending on their convenience through NACH* / Direct Debit or through post-dated cheques facility.
Investors need to fill up an Application form and SIP mandate form on which they need to indicate their choice for the SIP date (on which the amount will be invested).
Subsequent SIPs will be auto-debited through a standing instruction given or post-dated cheques. The forms and cheques can be submitted to the office of the Mutual Fund / Investor Service Centre or nearest service centre of the Registrar & Transfer Agent.
The amount is invested at the closing Net Asset Value (NAV) of the date of realisation of the cheque.
Benefits of SIP Investing
Power of Compounding
When you invest regularly through SIP and invest for the long term, the benefits are magnified by the compounding effect. Compounding effect ensures that you earn returns not only on your principal amount (actual investment) but also on the gains on the principal amount i.e. your money grows over time as the money you invest earns returns. And the returns also earn returns.
Calculate Monthly SIP Amount
Wondering how much you should start investing monthly to achieve your goal in time? Try out this tool and get your plan in place.
Select the tenure in which you would like to achieve your goal?
5 Year
Select the sum you would like to target?
50,000
Select Expected Rate of Return
Monthly Investment Amount
811
Power of Starting early
The earlier one starts saving and investing regularly, the easier it is to achieve your goals. The graph below shows the impact of beginning to invest Rs.5,000 monthly at various stages of life till the age of 60 years (assuming a return of 12% p.a.).
5 Years’ early start result in an
additional Rs. 1.21 crore in the
final retirement corpus.
- Amount invested via SIP
- Value of investment on Retirement
the above graph in for illustrative purpose only.
Source : Internal
If you start SIP at age 25, as per the illustration shown a corpus of approximately Rs. 2.76 crores can be generated at retirement. If you would have waited 5 years and started SIP at age 30, a corpus of approximately Rs. 1.54 crore would have been available to you at retirement i.e. a difference of Rs. 1.21 crore – which is the ‘cost of delaying starting SIP’.
Top-Up SIP
Top-up SIP is a facility that lets you increase your SIP by a fixed amount or percentage (say 10%) every year or at pre-defined intervals in line with an increase in your income/savings.
This Top -Up in your SIP allows your investments to be in line with the increase in the cost of living or inflation and helps you plan for your financial goals right. It can also help you reach your financial goals earlier or create a larger corpus for your goal.
Mr. A
Normal SIP
5000
Investor A started investing
5,000/month using Normal SIP for 25 years
with 12% Rate of Interest
Total Investment :
15,00,000
95,00,000
Final Corpus after 25 Years
Mr. B
SIP with 10% Top-Up
5000
Investor B started investing
5,000/month using Normal SIP for 25 years
with 12% Rate of Interest
Total Investment :
59,00,000
2.07 Crores
Final Corpus after 25 Years
How does a SIP Top-up operate?
- The Top-up option must be specified by the investors while enrolling for the SIP facility
- Top-up SIP will be allowed in all schemes in which SIP facility is being offered
- All other terms & conditions applicable for regular SIP will also be applicable to Top-up SIP
- SIP Top-up facility shall be available for SIP Investments through ECS (Debit Clearing) / Direct debit facility only
Investors are advised to read the respective fund houses' Scheme Information Document/Key Information Memorandum to understand such features and applicable terms & conditions before enrolling for SIP or Top-Up SIP
