The Systematic Investment Plan (SIP) is a strategy that invests a fixed amount at predetermined intervals rather than a larger lump sum all at once. In this method, the cost of your investment is averaged over time rather than trying to time the highs and lows of the market. It is a facility offered by mutual funds to the investors to invest in a disciplined manner
The fundamental idea behind SIPs is that investors automatically buy more units as the markets decline. Conversely, when the market is strong, they buy fewer units. This means that you buy less when the price is high whereas you buy more when the price is low. Consequently, the average cost per unit drops down over time.
With a Systematic Investment Plan (SIP), you can start with smaller, more manageable investments at regular intervals instead of having to deal with the burden of lump-sum investments. Based on your financial situation, decide on the amount and time duration.
How does a SIP work?
SIP is a smarter method to realise your aspirations and helps automate your savings. A SIP plan calculator works on the following formula –M = P × ({[1 + i]n – 1} / i) × (1 + I).
M- is the amount you receive on maturity, P is the amount you invest at regular intervals, n is the number of payments you have made and i is the periodic rate of interest. Now, for instance, If you invest ₹25,000 every month for 15 years at a 12 % expected rate of return, you may accumulate ₹1,18,98,285.
