SIP works on the principle of regular investments. It is like your recurring deposit where you put in a small amount every month. It allows you to invest in a MF by making smaller periodic investments (monthly or quarterly) in place of a heavy one-time investment. Though investments through SIP may not seem appealing at first, it enables investors to get into the habit of saving. And over the years, it can really add up and give you handsome returns. While making small investments through SIP may not seem appealing at first, it enables investors to get into the habit of saving. And over the years, it can really add up and give you handsome returns. For instance, a monthly SIP of Rs 1000 at the rate of 9% would grow to Rs 6.69 lakh in 10 years, Rs 17.83 lakh in 30 years and Rs 44.20 lakh in 40 years.
Power of compounding It is recommend that one must start investing early in life. One of the main reasons for doing that is the benefit of compounding. Let's explain this with an example. Age of Investment ( Start) 25 years30 years Monthly Investment5,000.00 No of years3530 Total Investment 2,100,000.00 1,800,000.00 Rate of Returns15% Corpus Built 73,385,901.0034,616,398.00
This is especially true for investments in equities. When you invest the same amount in a fund at regular intervals over time, you buy more units when the price is lower. Thus, you would reduce your average cost per share (or per unit) over time. This strategy is called 'rupee cost averaging'. People who invest through SIPs capture the lows as well as the highs of the market. In an SIP, your average cost of investing comes down since you will go through all phases of the market, bull or bear. Regular DateInvestment (Rs.)Price per Unit (Rs.)No. of Units received June 20125000.0010500.00 July 20125000.009555.56 Aug 20125000.009555.56 Sept 20125000.008625.00 Oct 20125000.007714.29 Nov 20125000.008625.00
It's a way of making the value of your investment grow at the same time as removing the difficulty of "timing the market". In the long run, investing on a regular basis also helps to reduce your overall risk. Let us see another example :
The returns of long term SIPs in some of the selected schemes are shown below : For 10 Years : Scheme NameTotal Amount Invested(Rs)Present value(Rs)XIRR(%) Birla SL Frontline Equity Fund(G)1,20,000.002,84,418.5516.6920 Franklin India Bluechip Fund(G)1,20,000.002,58,987.0214.9254 HDFC Top 200 Fund(G)1,20,000.002,79,434.5816.3591
Scheme NameTotal Amount Invested(Rs)Present value(Rs)XIRR(%) Franklin India Bluechip Fund(G)1,80,000.008,68,927.6719.0813 HDFC Top 200 Fund(G)1,80,000.0010,81,708.1121.5773 Reliance Growth Fund(G)1,80,000.0014,58,296.0724.9669 For 15 Years :