Popularly known as SIP, the systematic investment plan is an investment facility that lets you invest the desired amount of money on a regular basis to help you plan for your goals. It instils disciplined method of investment without disrupting your finances. Investing in equity mutual funds through the SIP route can help you accumulate wealth over time.
Top-up SIP is a type of facility that allows you to increase the SIP instalment amount by a fixed sum at pre-determined intervals. The facility will help you understand your future requirements and accordingly plan to achieve your life goals.
The decision to invest through SIP or one-time depends on your cash flows. If your cash flows are regular, you can opt for a monthly SIP. If your cash flows are irregular, you can invest one-time. If you are investing a large sum, it is advisable to invest lumpsum in a Debt Fund and opt for Systematic Transfer Plan (STP) into Equity Fund, especially when markets are overvalued.
Equity markets tend to be volatile. Hence, SIP offers the benefit of rupee cost averaging. This ensures that you get more units when the markets fall and less units when it rises, thereby averaging the cost per unit of your investment. In fact, SIP eliminates the risk of timing the market and smoothens out the falls and peaks so that your investment can benefit from volatile markets.
Unless you have a financial emergency, you should avoid pausing your SIP when markets are volatile. Investing through SIP when markets are falling helps you accumulate more mutual fund units.
| NAV when market falls | SIP Amount | Units acquired |
| 50 | Rs. 10,000 | 200 |
| 49 | Rs. 10,000 | 204 |
| 47 | Rs. 10,000 | 213 |
| 46 | Rs. 10,000 | 217 |
| 45 | Rs. 10,000 | 222 |
Every time the market falls, your SIP buys more units. In case of negative returns, the loss you see is only notional, i.e., it will be real if you decide to sell off your holdings. Hence, it is prudent for investors to continue with their investment plans. Benefits of a SIP are seen over the long term when you keep investing regularly over different market cycles. Continuing to invest when markets are down gives you a better chance to enhance returns when the market recovers.
The earlier you start the better your chances of getting the benefit of compounding over long run. Let us see this with the help of an illustration. Suppose A starts investing Rs.5,000 monthly at the age of 25 years for his retirement while B starts investing the same amount at the age of 35. At the end of 35 years, A accumulates a corpus of Rs.1.90 crore with the help of compounding a longer time horizon while B accumulates Rs.66.34 lakh. Thus, with a ten year delay, B loses out Rs.1.23 crore.
| Invest Now | Invest Later | |
| SIP Starting Age | 25 Years | 35 Years |
| SIP Amount (Monthly) | ₹5,000 | ₹5,000 |
| Expected Returns | 10% | |
| SIP Ending Age | 60 Years | 60 Years |
| Total Years Invested | 35 Years | 25 Years |
| Total Amount Invested | ₹21.00 Lacs | ₹15.00 Lacs |
| Final Value of Your Investment | ₹1.90 Cr | ₹66.34 Lacs |
| Wealth creation | ₹1.69 Cr | ₹51.34 Lacs |
| Cost of Delay | ₹1.23 Cr | |
Disclaimer:
Past performance may or may not be sustained in future and is not a guarantee of any future returns. Please note that these calculators are for illustrations only and do not represent actual returns. Mutual Funds do not have a fixed rate of return and it is not possible to predict the rate of return. *This does not take into account the effects of inflation on the value displayed here.
