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How Systematic Investment Plan Works Over a Longer Period? Investment Plan

How Systematic Investment Plan Works Over a Longer Period?

Sponsored post | @indiablooms | 29 Sep 2022, 03:43 pm

A systematic investment plan or SIP is synonymous with mutual fund investment – for the uninitiated. Over the last 10 years, SIP has become so popular that even seasoned investors don’t consider it to be just a tool to invest in mutual funds. 

Simply put, SIP allows people to invest at regular intervals, in amounts they are comfortable with, and create or compound their wealth over a period of time. As the saying goes, ‘being regular is the way to success' – so is the case with investment. This way, you can help save up at regular intervals per your convenience to build a financial corpus. 

SIP in Detail

With a SIP, you invest a pre-defined amount at regular intervals. The flexibility to invest a small amount of INR 500 or INR 1000 per month makes SIP quite affordable for any individual. Apart from the convenience factor, it provides investors an insight into the ways and workings of the mutual fund.

A disciplined approach could help become a habit and even a part of your household budget. The comfort of transferring funds from a bank account to SIP; and allocation of units of shares based on the price – known as NAV or net asset value – the day money is credited to the SIP account, is not complicated at all once you get started.

With the help of compounding and the benefit related to expenses ratio, SIPs can help fuel your investment growth over the years.

To get started, you need to get your KYC verified. After filling in your KYC details and submitting them online either through an asset management company or using verified SIP apps. Thereafter, you need to select the SIPs you want to invest in along with the investment amount and frequency – weekly, monthly, semi-annually, etc. 

Let’s say your monthly SIP is INR 10,000. This amount would essentially create units in your mutual funds stock based on the net asset value at which the units are allocated. To illustrate further, when NAV is INR 20, the total number of units would be 500, and so on. Therefore, NAV reflects the market movement.

So, when NAV is high, the number of allotted units is lower for the same investment sum of INR 10,000 (as stated above). This way, with the highs and lows of the market cycles, the unit cost of your total investment averages – known as the rupee cost averaging. Now, if you continue to invest the INR 500 amount for a decade, at 10% SIP return value would yield 10,24,225 with the principal invested as INR 6,000.

The same amount at a 15% return would yield INR 13,76,085. Here, compounding plays an important role as it reinvests capital gains in the funds which help create accumulated earnings. This is the impact of compounding which has made SIPs popular.

SIPs have helped achieve financial goals for many. So, it’s always best to start planning and investing in SIP at an early age. Even if you are in your 30, or 40s and just got to know about SIP, it’s never too late to start with all the knowledge you have now!