What is SIP

Systematic Investment Plan (SIP) is an investment route offered by Mutual Funds wherein one can invest a fixed amount in a Mutual Fund schemes at regular intervals– say once a month or once a quarter, instead of making a lump-sum investment. The installment amount could be as little as Rs. 500 a month. It’s convenient as you can give your bank standing instructions to debit the amount every month.

SIP has been gaining popularity among Indian MF investors, as it helps in investing in a disciplined manner without worrying about market volatility and timing the market. Systematic Investment Plans offered by Mutual Funds are easily the best way to enter the world of investments for the long term. It is very important to invest for the long-term, which means that you should start investing early, in order to maximize the end returns. So your mantra should be - Start Early, Invest Regularly to get the best out of your investments.

Why you should Start Early and keep investing without any interruption to get benefited from Power of Compounding

To understand this concept, Let me tell you a short story: Two friends A & B started their Job on same day and with same salary, i.e. 50000/- p.m. at the age of 25.

A has started an SIP of ₹ 10000/- p.m. till the age of his retirement and didn’t interrupt the process.

Whereas B was waiting for the salary increase and living life with all the expenses with out savings. At age 35 he started an SIP of ₹ 20000/- p.m. till his retirement i.e. 60 years.

Now you can see, in below table the Value of corpus made by each of them.

How GOAL based SIP do wonders for you

Setting GOAL is the first step in turning the INVISIBLE into the VISIBLE By: Tony Robbins

Goal-based SIP is not just about accumulating wealth; it’s about aligning your money with your aspirations. Once you link your GOAL with the SIP see the magic. Your GOALS will clear and visible to you.

Let’s use an example to look at how SIP investments can be a valuable tool for goal-based investing

Miss Rachna, aged 25 years, is a young professional who aspires to achieve below GOALS Buy her dream home in 10 years. She expects that she will need ₹ 30 Lakh for the down payment.

Buy her dream car in next 5 years of ₹ 15 Lakh (Then Value)

Having a corpus of ₹ 2 Cr. At her age of Retirement at 60 years.

So, Rachna decides to use a financial goals planner tool, which suggests below per month investments to achieve her GOALS

Just ₹ 35515/- monthly through SIP in a mutual fund scheme, she could potentially the required amount in the given timeframes, considering an average annual return of 12%. (For illustrative purpose only)

This is the power of SIPs – they break down a large financial goal into achievable monthly investments. By being a diligent goal planner and using the concept of goal-based SIPs, Archana is well on her path to realizing her dream.

How Systematic Investment Plan works & its Benefits

SIPs work like recurring investments, where this amount is auto-debited from your bank account and invested in the mutual fund of your choice. Once the amount is deposited, you get a certain number of units of the mutual fund scheme where you have invested.

Disciplined approach to investing: As you choose a fixed Amount and Date of Investment, provides discipline in investing

Flexibility & Convenience: You can choose any Amount & Date of Investment. Amount will be debited from your Bank account every month on chosen date.

Power of Compounding: Compounding do wonders who understand it. Compounding is profits made on profits. Let’s understand with below example, Compounding worked for Mr. A for 35 Years & for Mr. B for 25 Years. Though the Invested amount of B is larger than the A

Two friends A & B started their Job on same day and with same salary, i.e. 50000/- p.m. at the age of 25.

A has started an SIP of ₹ 10000/- p.m. till the age of his retirement and didn’t interrupt the process.

Whereas B was waiting for the salary increase and living life with all the expenses with out savings. At age 35 he started an SIP of ₹ 20000/- p.m. till his retirement i.e. 60 years.

Now you can see, in below table the Value of corpus made by each of them.

SIP top Up/ SIP linked with the Income/Salary:

Many times we have seen the Targeted SIP seems big in comparison of current Income/Salary. i.e. A earns ₹ 50000/- p.m. and wishes to create a corpus of ₹ 30000000/- for his retirement in next 20 years. In current conditions he/she has to save ₹ 22607/- per month (Rate of Return is assumed @ 15% p.a.) i.e. about 45% of his/her current salary, which may be the difficult for him/her.

Now we tell the A about the Step up SIP or Income/Salary Linked SIP (It’s our Term).Let us tell you how it works?

Let’s take the above scenario and assume that the Income /Salary of A will increase 10% annually.

Only ₹ 12250/- p.m. Step up SIP can achieve the Goal of ₹ 30000000/- in 20 Years. See the below table.

Benefit of Step up SIP

• Higher Corpus in future.
• Avoiding hassle for additional research every year.
• You can start with low amount.
• Helps achieving big Goals.
• Many times a debate goes on the street about, what is better Lump sum Investment or an SIP.
• This is the matter which doesn’t have any concrete answer. In our view it all depends on the reaction of market after your Investment.
• Lump sum is better if you think markets will go up from where you have invested the Money.
• SIP will be better if markets go down and remain sideways for some of initial period of your investment.
• Lump sum+ SIP will do wonders in your investment Journey if you are able to put some Lump sum as low as ₹ 100/- in your existing SIP as or when there is a correction in the markets.