SIP
Definition
Systematic Investment Plan — a method of investing a fixed amount at regular intervals (typically monthly) in mutual funds. SIP benefits from rupee cost averaging (buying more units when prices are low) and the power of compounding.
Why is SIP Important?
In the context of wealth creation and investing in India, SIP is a fundamental concept. Whether you are investing in mutual funds via SIPs, fixed deposits, or retirement schemes like PPF and NPS, this metric helps evaluate potential returns and risks. The power of compounding and market volatility make it essential to track this indicator for any long-term portfolio.
Investors are encouraged to use specific investment calculators to project the future value of their corpus. Understanding this term enables better asset allocation, inflation protection, and consistent progress toward your ultimate financial goals.
What is SIP?
Systematic Investment Plan (SIP) is a method of investing a fixed amount in a mutual fund scheme at regular intervals (monthly / quarterly). SIP enables disciplined investing through rupee cost averaging, where you buy more units when prices are low and fewer when prices are high.
How SIP Works
| Month | NAV (₹) | SIP Amount (₹) | Units Purchased |
|---|---|---|---|
| Jan | 100 | 5,000 | 50.00 |
| Feb | 90 | 5,000 | 55.56 |
| Mar | 110 | 5,000 | 45.45 |
| Total | Avg: 99.01 | 15,000 | 151.01 |
SIP vs. Lump Sum
| Feature | SIP | Lump Sum |
|---|---|---|
| Risk | Lower (averaged out) | Higher (timing risk) |
| Minimum | ₹500/month | ₹1,000-₹5,000 |
| Best for | Salaried investors | Those with surplus cash |