One major benefit of SIP is its convenience, as the predetermined amount is automatically transferred from your savings bank account to your selected mutual fund
A Systematic Investment Plan (SIP) is a automated investment strategy that enables you to invest a fixed amount at regular intervals in your preferred mutual funds. It functions akin to a recurring deposit in a bank, ensuring a consistent investment process.
An SIP offers notable convenience, as the designated amount is automatically transferred from your savings bank account to your chosen mutual fund based on the intervals you choose—whether daily, weekly, monthly, or quarterly. While the frequency is your choice, monthly SIPs are widely favored as they can align with your salary cycle.
A noteworthy characteristic of SIPs is their capacity to generate substantial returns over time, even with a modest investment. According to a report from FundsIndia, a monthly saving of just Rs 1,000 can result in significant gains. For example, investing Rs 1,000 per month in an equity SIP over 30 years at a 12% annual rate would mean a total investment of Rs 3.6 lakhs. However, the portfolio value would grow impressively to Rs 34.9 lakhs.
If the investment period is shortened to 20 years, the investment amount would be Rs 2,40,000, but the portfolio value would be Rs 9.89 lakhs. A decade-long investment of Rs 1,000 per month would total Rs 2,30,038, compared to Rs 1,20,000 invested over the same period.
SIPs offer investment flexibility, allowing you to invest in large cap, mid cap, or small cap funds based on your risk tolerance. However, what distinguishes SIPs is their ability to generate wealth through the compounding effect. This involves earning returns not only on the initial investment but also on the accumulated gains, thanks to the reinvestment of profits back into the fund. Regularly investing through SIP allows modest contributions to grow into a significant sum over time, highlighting the compounding's multiplier effect. According to a report from FundsIndia, the more extended your investment tenure, the more pronounced this effect becomes.
