A SIP or Systematic Investment Plan or SIP is not a product in itself. It’s method of investing a regular sum every month in Mutual Funds ( Usually Equity Mutual Funds for long term wealth creation )

Let’s say you earn Rs 50,000 per month, of which you want to invest 20% or Rs 10,000 every month.

An SIP automates and brings discipline to your investment process. 

Once you have setup an SIP, every month, an amount of Rs 10,000 will automatically be debited from your bank account and sent to the Mutual Fund company. You can also stop it and withdraw your money anytime you wish.

The biggest advantage of an SIP is the habit of regular, disciplined savings. Another benefit is that when investing through SIP, it is not necessary to time the market. Investments will be made systematically every month and It ensures investing in all phases of the market where more units will be accumulated during a bearish phase and a lesser number of units in a bullish phase. This way, you enjoy the benefit of rupee cost averaging under this method.

How much can your money grow ?

How much your money grows will depend on the type of funds you invest in. E.g. if you invest in fixed income funds, then it can grow around 8-10% while equity funds can deliver 15% and more.

In order to beat inflation you must allocate portion of your investment into equities. There is one strategy which never fails in equity market and that is the strategy of averaging your cost of investment. If you invest on a monthly basis in quality stock over a long period of time, you will always make huge return. There are varieties of ways investment experts try to predict market. However, there is no one who can be 100% confident on what will happen in future. Therefore, you should not try to time the market. Keep it simple, invest in equity market irrespective whether the market in going up or going down. You can achieve this by investing through Systematic Investment Plan.

Systematic Investment Plan (SIP) is a method of investing a fixed/regular sum every month or every quarter. With the growing everyday expenses, it becomes difficult to accumulate a considerable sum which can be invested at one go. But with an SIP, you can start with a modest amount of Rs. 5000 every month and this can be invested in any scheme of your choice as most mutual funds have this facility for their schemes.

The biggest advantage of an SIP is the habit of regular, disciplined savings. Every month, like all other EMIs, this also gets deducted from the bank account through electronic clearing service, which is convenient. Another benefit is that when investing through SIP, it is not necessary to time the market. Investments will be made systematically every month or quarter depending on the option. It ensures investing in all phases of the market where more units will be accumulated during a bearish phase and a lesser number of units in a bullish phase. This way, the investor enjoys the benefit of rupee cost averaging under this method.

Let’s say, you started an SIP in June 2013 with Rs. 10,000 every month.

Month Amount invested (Rs.) NAV (assumed) Units allocated
June 2013 10,000 11.0 909.1
July 2013 10,000 11.5 869.6
Aug 2013 10,000 10.0 1,000.0
Sept 2013 10,000 14.0 714.3
Oct 2013 10,000 9.0 1,111.1
Total: 50,000 4,604.1

The average cost per unit is Rs. 50,000/4604.1 = Rs 10.9. However, if you had invested your Rs. 50,000 all at once in June 2013, you would have been allotted 4,545.4 units at the cost of Rs. 11.

It’s clear that SIP, with its small investments goes a long way in helping you grow your money and achieve your goals.

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