What is SIP?
SIP or Systematic Investment Plan is a disciplined approach to investing in mutual funds. It allows you to invest a fixed amount regularly (monthly or quarterly), regardless of market conditions, helping you build wealth over time through rupee cost averaging and compounding.
How SIP Returns are Calculated
The formula to calculate the future value of SIP investments is:
FV = P \u00d7 [(1 + r)^n - 1] \u00d7 (1 + r)/r
- FV = Future Value
- P = SIP amount
- r = Periodic interest rate (annual rate / 12 / 100)
- n = Total number of installments
Benefits of Investing via SIP
- Encourages regular saving habit
- Minimizes market timing risk with rupee cost averaging
- Power of compounding over long term
- Affordable: start with as low as Rs. 500/month
- Can be aligned with specific financial goals
How to Use the SIP Calculator
Enter your monthly investment amount, expected annual return rate, and duration in months or years. The calculator will show the future value of your investment, total invested amount, and gains earned.
Frequently Asked Questions (FAQs)
Is SIP better than lump sum investment?
SIP reduces market volatility risk through periodic investment and is ideal for those without a large lump sum. However, lump sum might generate higher returns if invested during a market dip.
Can I change my SIP amount later?
Yes, you can increase, decrease, or stop your SIP anytime through your mutual fund account or app. It offers complete flexibility.
What is the ideal SIP duration?
There is no fixed duration. For wealth creation, a long-term horizon of 5 years or more is recommended. The longer you stay invested, the greater the compounding benefit.
Does SIP guarantee returns?
No, SIPs are subject to market risks as they invest in mutual funds. However, long-term investment tends to average out returns and historically has given better results than one-time investments.