What is a SIP?

SIP or systematic investment plan is the smartest way to regularly invest periodically a fixed investment amount in a mutual fund (usually monthly or quarterly) without wondering if the market is at its high or low, thereby allowing you to invest consistently throughout the ups and downs of the market and take advantage of rupee cost averaging and compounding.

SIP is becoming one of the most popular forms of investment in India, primarily because it's simple, affordable and effective for creating long-term wealth. SIP is a good option for novices and even experienced investors because they can invest consistently and not have to worry about the stress of investing in the market.

You can start your own SIP with just as little as ₹500 a month, and you can always increase or even decrease the amount and also stop and even pause payments whenever you would like without any related penalties or fees. The flexibility that comes from SIP means it can be used for just about any financial goal.

How to Calculate Your SIP Projections

To see how much wealth you could create via SIP, using an online SIP calculator is the quickest way to find out. SIP calculators consider your monthly investment amount, expected annual return, and investment duration and can provide you with an expected future value of your SIP investment.

As an example, if you invested ₹ 5,000 on a monthly basis for a period of 10 years, and earned an average of 12%, the calculator would show how much you would have invested, your interest earned and your maturity value. Knowing this can help you better plan and project for large life goals such as your retirement, your child's education, and/or buying a home.

An online SIP calculator is fast, precise, and helps eliminate human error. You also get instant insights when working toward complex and inter-connected goals based on financial planning. It can demonstrate how small investments can accumulate quickly to become a large financial corpus.

What is the Formula for Calculating a SIP?

The future value of SIP investments is calculated using this formula:

Where:

FV = Future Value of the investment

P = Amount invested through SIP

r = Monthly rate of return (annual return ÷ 12)

n = Total number of months

Example: If you invest ₹2,000 per month for 5 years (60 months) at a 10% annual return (~0.83% per month), the formula shows how much your total investment will grow to.

While the formula looks complex, a SIP calculator solves it instantly, saving time and avoiding mistakes.

Types of SIP

There are various SIP options available to meet different needs. The common types of SIP are:

• Normal SIP - You invest a fixed amount of money at regular intervals (usually monthly).
• Top-up SIP (Step-up SIP) - You can increase your SIP investment over time, meaning if your income increases, there is no need to increase the investment amount, you can increase your SIP amount.
• Flexible SIP - You can change the investment amount depending on your cash flow or depending on market conditions.
• Perpetual SIP - Is an open-ended SIP that continues until you stop it. Other types of SIP have a fixed tenure whereas perpetual SIPs are continuous.
• Trigger SIP - When you set up an SIP, you define some conditions (e.g., if NAV reaches a certain point, or if the index goes above or below a certain level). When the conditions are met, the SIP starts and usually, will invest the amount you defined in the application.

Different types of SIP correspond to various issues that people wish to address in their` such as long-term wealth creation, retirement planning and tax savings.

Understanding the Benefits of SIP

SIP is more than a systematic and small amount of investment. It creates a very sound and reliable habit of systematic wealth creation. Here are some strong benefits of SIP:

• Financial Discipline - SIPs encourage saving and investing in a disciplined way, as opposed to making emotional and short-term decisions.
• Rupee Cost Averaging - SIPs means that you buy more units when prices are low and fewer units when prices are high, which averages the total cost of investment over time.
• Power of Compounding - The growth of money is faster in the long-term when the interest on principal grows the interest on interest.
• Low Entry - You can start your SIP for ₹500 per month.
• Flexible & Convenient - You can increase, decrease, pause, and stop your SIP anytime.
• Tax Benefits - Any SIP in ELSS funds is applicable for the deduction under Section 80C.

Final Thoughts

SIPs are one of the simplest and safest methods in consistently building your wealth over time. If you stick to a monthly contribution, invest while keeping a reasonable view of expected returns, and use a SIP calculator to imagine what this will mean for your future destination (child’s education, a dream holiday, or your retirement), think of the possibilities!

Use the free, online SIP calculator today to estimate returns from the comparison of offered plans, and invest smarter after estimating returns. It is quick, easy to use, and accurate—whether you are new to investing or an experienced investor.