Systematic Investment Plan (SIP) is a mechanism that helps achieve long-term financial goals by investing regularly in mutual funds. Instead of a lump-sum investment, you invest a small amount every month for a long period. It is becoming the most popular mode of investment among Indian mutual fund investors. Even small amounts like Rs 500 per month can be invested in installments.

How does SIP work?
The operation of a Systematic Investment Plan is very straightforward. Each month, you authorize your bank to debit a fixed amount. The bank deducts the authorized amount and invests it at the prevailing market rate. Since it is a compound interest-based approach, over the years it grows into a substantial amount.

When investing through SIP, units are purchased at different prices according to market conditions. When the market is down, more units are obtained, and when the market is up, fewer units are obtained. This paves the way for the concept of “rupee-cost averaging,” which helps reduce your average cost over time. SIP is a long-term investment route. Extending the investment for at least 5-8 years helps achieve better returns. Starting SIP for goals like education, marriage, buying a house, retirement, etc., is a good idea. To start SIP, you need a PAN card, Aadhaar card, and a bank account. Initiating an account is possible through online mutual fund platforms, mutual fund companies’ websites, or banks.

SIP is an investment route that is easy for common people to start. By starting with small amounts and investing consistently, it helps create substantial wealth over the long term. Indian mutual fund investors are finding SIP increasingly popular, aiding wealth creation and the attainment of financial goals.

If you invest Rs. 500 every month in SBI —— fund for 10 years, your invested amount and the future value with compounding would be as follows.

SIP amount: Rs. 500 per month
Expected return rate: 16%
Investment horizon: 10 years

Your investment: Rs. 60,000
Future value of investment: Rs. 1,38,765