Systematic Investment Plan (SIP) is a kind of investment scheme offered by mutual fund companies. Using SIP one can invest small amount peridically (weekly, monthly, quaterly) into a selected mutual fund. For retail investors, SIP offers a well disciplined and passive approach to investing, to create wealth in long term (using the power of compounding). Since, the amount is invested on regular intervals (usually on monthly basis), it also reduces the impact of market volatility.
SIP Calculator helps you calculate the wealth gain and expected returns for your monthly SIP investment. You get a rough estimate on the maturity amount for any monthly SIP, based on a projected annual return rate.
Benefits of SIP as compare to Lump sumps investment
- You don’t need to speculate or focus on timing the market (which isn’t the right way for generating returns over long term)
- Amount is invested on monthly basis, so there is little to no impact of market volatility (unit cost averaging)
- Passive and automated (monthly installments can be deducted automatically) approach makes you more committed to guranteed saving/investment
- It’s very flexible – you can create/update/cancel SIP anytime. Most of the funds starts as low as Rs. 1000 per month
Rupee cost averaging
SIP Investment show effect of Rupee cost averaging.
Rupee cost averaging is an approach in which you invest a fixed amount of money at regular intervals. This in turn ensures that you buy more shares of an investment when prices are low and less when they are high.This effect generate higher returns over lumpsum investment.
SIPs:How Rupee cost averaging work explained below.
If you are investing in stocks or funds, the value of what you buy varies over time. Even in ‘normal’ market conditions it is possible for your investment to be worth less than it cost you.
Many investors try to ‘time the market’, which means that they make their investments at a time when they believe that values have fallen to such a level that the only way for prices to go is up. History has shown time and time again that this is extremely difficult to predict, even for seasoned investment professionals.
A simple way to smooth out the ups and downs of financial markets is to make smaller regular investments rather than one large lump sum.
The process of regular investment leads to an effect called rupee cost averaging, which is explained in the table alongside.
Important notes for SIP
1.Select Growth(G) option of Mutual fund for long term welth development
2.Invest in Direct plan would generate higher returns as compare to Regular plan.
3.Select Mutual Fund that generate higher returns over long period (ie 10 and more year).
4.How to start SIP? : There is no demat account require to start SIP, only bank account require for the same, so inquire at your bank only to start SIP.
5.SIP generate large corpus over long time i.e. more than 12 to 15 years due to coumpounding effect is being strong over long period, example- only Rs. 1500 invested monthly at rate of return 15% can give you
Rs. 1.3L at 5 year,
Rs. 6.1L at 12 year,
Rs. 10.2L at 15 year,
Rs. 16.6L at 18 years and
Rs. 22.7L at 20 year.
Here you find that after 12 year your money will be almost double with in 3 year ie at 15 year because compounding effect will be strong after this period and continuously be stronger as time pass then after.
Can you assume at 35 year what you get with above example SIP?
It is Rs.2.2 crores.