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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.

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
Tenure
Target
Rate of Return
=
Monthly Investment Amount
811
START SIP NOW

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

Frequently asked questions

1. What is Top up SIP?

Top up SIP is a facility which allows an investor to increase the amount of SIP instalments by a fixed amount at pre-determined intervals.

2. What is power of compounding?

Power of compounding is a concept in which interest earned on the investment is reinvested which leads to compounding of interest and helps in long term wealth creation.

3. What is the difference between Top- up SIP and SIP?

Top up SIP is a facility in which an investor can increase the amount of SIP instalments by a fixed amount at pre-determined intervals whereas SIP is a facility in which a fixed amount is invested at pre-determined intervals.

4. What is meant by “Rupee Cost Averaging?

Rupee cost averaging is a concept which allows an investor to take advantage of the market volatility. By investing in a SIP, an investor gets more units when the Net Asset Value (NAV) is less and less units when the NAV is high. This brings down the average cost of the units over the long term.


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Dear Investor, Following is an update on change in cut-off timings for Mutual Fund transactions basis SEBI/AMFI communication w.e.f. 19-Oct-20. Purchase - Liquid & Overnight schemes: 12.30 pm; Debt & Conservative Hybrid schemes: 1.00 pm; All other schemes: 3.00 pm. Redemption - Liquid, Overnight, Debt & Conservative Hybrid schemes: 1.00 pm; All other schemes 3.00 pm. Switch - Equity to Equity scheme: 3.00 pm and for all other schemes switches: 1.00 pm. Click here to read the addendum.