SIP (Systematic Investment Plans) have emerged as a preferred investment method for individuals looking to accumulate wealth over time. By depositing a fixed amount at regular intervals, SIPs help in disciplined investing while benefiting from the power of compounding.

What is SIP?

It’s an investment method in mutual funds where an investor contributes a predetermined amount at fixed intervals. Instead of making a one-vtime investment, SIP allows for small, consistent contributions that grow over time, leading to higher returns.

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How does SIP work?

Once an investor sets up an SIP, the chosen amount is automatically deducted from their bank account and invested in the selected mutual fund. The investor is allocated units of the mutual fund based on the NAV (Net Asset Value) on the investment date. With each SIP installment, additional units are added and the reinvested amount continues to grow along with market movements.

Investors have the flexibility to receive returns at the end of the SIP’s tenure or at periodic intervals based on their financial goals.

SIP Investment vs Lump Sum

Consider an investor who has Rs 1 lakh for mutual fund investment. They have two options:

• Lump Sum or one-time investment: The entire amount is invested at once.
• SIP investment: The investor contributes a smaller fixed amount, such as Rs 500, at regular intervals (e.g., monthly).
• SIP investments provide the advantage of rupee cost averaging, reducing market risk compared to a lump sum investment.

When should you start an SIP?

There is no specific time to begin an SIP investment. The earlier one starts, the greater the potential returns, as compounding works best over long durations. Choosing the right mutual fund aligned with long-term goals is crucial for fixed returns.

Also Read: Return Comparison: SIP or PPF? Which can build larger corpus on Rs 1,25,000 annual investment?

Building more than Rs 1,00,00,000 corpus with Rs 9,000 monthly investment in SIP

A monthly SIP of Rs 9,000 can help an investor accumulate over Rs 1 crore in approximately 22 years.

• Total deposited amount: Rs 23,76,000
• Estimated returns: Rs 82,52,406
• Total value: Rs 1,06,28,406

This example highlights the power of disciplined investing and compounding in wealth creation over time.