What is SIP?
SIP or Systematic Investment Plan is a method of investing a fixed amount in mutual funds at regular intervals, typically monthly. Instead of investing a lump sum, you invest small amounts consistently over time, benefiting from rupee cost averaging and compound interest.
How Does SIP Work?
When you start a SIP, a fixed amount is automatically deducted from your bank account on a set date each month and invested in your chosen mutual fund. You receive units at the prevailing NAV (Net Asset Value). Over time, as NAV grows, the value of your total units grows, creating wealth.
SIP vs Lump Sum Investment
- SIP: Lower risk, automatic, suitable for salaried individuals, benefits from market volatility
- Lump Sum: Better when markets are low, requires timing, suitable for one-time windfalls
- For most investors, SIP is recommended as it removes the need to time the market
Frequently Asked Questions
What is a good SIP amount to start with?
You can start a SIP with as little as Rs 500 per month. However, a good starting point for wealth building is Rs 5,000–10,000 per month. The key is to start as early as possible and increase the amount as your income grows.
What return should I expect from SIP?
Large-cap mutual funds have historically returned 10–12% annually over long periods. Mid-cap and small-cap funds can return 12–15% but with higher risk. For conservative estimates, use 10–11% in the calculator above.
Is SIP safe?
SIP is a method of investing, not a guarantee of returns. Mutual fund investments are subject to market risk. However, long-term SIPs in diversified equity funds have historically delivered positive returns over 10+ year periods.