What is Systematic Investment Plan (SIP)?

Systematic Investment Plan or SIP is a type of investment option in which certain amount (usually in multiple's of 100, 500 or 1000) is invested in mutual funds on regular basis. The sip scheme is offered by a mutual fund company to investor so that investment can be done in small amount as well. SIP is like "little drops of water makes ocean". There are numerous advantages of the scheme which makes it much more popular. We have listed down some of them below.

What are main advantages and highlights of Systematic Investment Plan?

  • Benefits of Systematic Investment Plan (SIP)

    • In SIP option investor can choose his mutual fund company and sip plans which are based on risk profile and return expectations as per individual need. There are plenty of options available in each risk profile and can be enrolled easily for specific period of time investor wants.
    • If investor wants to achieve specific target amount and can spare some amount on monthly basis, then SIP scheme offers right opportunity to do so. Generally, SIPs are kept for at least 3 years of time where one can expect much higher returns than Term deposit or Bonds or similar type of options in investment horizon.
    • A good investor should distribute the earnings into distinct investment options such as Mutual funds, Bonds, Term Deposits etc. Each scheme has its own pros and cons. However, when it comes to SIP or Lump sum purchase in mutual funds, it has got distinct benefits and much higher returns as it has linkage to Share market volatility, Money market, Corporate or Government bonds etc.
    • There are some options in mutual funds are available which pays you monthly or regular dividend based on your accumulated units. This in short make some good money on regular basis. The advantage is more when you get dividend on regular basis and after maturity you can expect capital appreciation as current unit cost may be greater than your average purchase price.

  • Example of SIP:

      • Let us discuss further with real time example. An investor can spare 5000 on monthly basis and agrees to do so of next 7 years expecting average return as 18 %. You can use our SIP calculator to compute it as per your need. Here investor pays 5000 * 12 * 7 = 420,000 over the period of 7 years to mutual fund company. Now as per annual compounding and considering mutual fund is performing well his return is 18 % per annum. Total interest investor will get after 7 years = 377,723.95 and total maturity value investor will get after 7 years = 797,723.95. Look at the amount investor has invested (420,000.00) and look at the maturity value he is getting back (797,723.95). The money is almost doubled in 7 years of span. Please refer below image from our calculator screen. sip calculation image.