What is SIP?
What is SIP?
A Systematic Investment Plan (SIP), is a facility offered by mutual funds to the investors to invest in a disciplined manner.
SIP facility allows you to invest a fixed amount of money at pre-defined intervals in the selected mutual fund scheme. The fixed amount can be as low as Rs. 500, while the pre-defined interval can be on a weekly/monthly/quarterly/semi-annually or annual basis. By this, you invest in a time-bounded manner without worrying about the market dynamics and stand to benefit in the long-term due to average costing and power of compounding.
Benefits of SIP Investing
- Power of Compounding
By investing regularly through SIP and for a longer period of time, 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 invested earns returns. And the returns further also earn returns.
Power of Starting early
- The earlier one starts saving and investing, 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.).
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.
