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What is SIP?
Systematic Investment Plan or SIP is one of the most popular investment options among retail investors in India. A SIP is a mutual fund investment facility where an investor can invest fixed amounts in mutual fund schemes at a regular intervals (weekly, fortnightly, monthly etc). Through SIP, you can invest in mutual funds from your regular savings with the objective of wealth creation over long investment tenures.
How to invest in SIP?
You have to select a mutual fund scheme according to your investment objectives and risk appetite. To start an SIP, you have to submit a bank ECS mandate. Through the ECS mandate, the SIP amount will automatically get debited from your bank on the particular day of the month specified by you and get invested in the scheme of your choice. For each SIP instalment, you will be allotted units of the mutual fund scheme based on the prevailing NAVs.
Different types of mutual fund SIPs
The most common type of SIP is the plain vanilla SIP, where you invest fixed amounts every month. Then there are goal based SIPs, where you associate your SIPs with different financial goals. Goal based SIPs help you remain disciplined in your goals. SIP Top-up is a value added SIP facility, where you can increase your systematic investment plan instalments over time as your income increases; it can help you create more wealth or reach your goals faster. Then there is variable or flex SIPs, where you can change your SIP amounts depending on market movements.
What is SIP calculator?
SIP calculator can tell you the returns of SIP of certain amount and tenure as specified by the investor. It will tell you how much wealth you can accumulate for a certain SIP amount and tenure.
How SIP Calculator works?
A Systematic Investment Plan can be thought of as a series of lump sum investments. So if you are doing monthly SIP of Rs 10,000 for five years, you can think of it as 60 lump sum investments of Rs 10,000 each. Each SIP instalment earns return over the investment tenure. The instalments made earlier in the investment tenure has the potential of earning higher returns because of the power of compounding. SIPs also take advantage of market volatility through Rupee Cost Averaging. So the instalments made in market corrections also earn higher returns when market recovers
How to Use the SIP Calculator?
- Select the mutual fund scheme in which you wish to start your SIP
- Enter amount – each SIP instalment with which you wish to start, in the SIP calculator
- Select frequency – fortnightly, monthly, quarterly, half-yearly depending on how often you want your SIP instalment to be auto-debited from your bank account and invested in your scheme
- Enter start date – date on which you wish to start your systematic investment plan
- Enter end date – date on which you wish to end your SIP
- SIP Calculator will tell you the current value of your investment (as on the end date, entered by you), total number of units purchased and annualized returns in XIRR