Systematic Investment Plan - SIP
Systematic Investment Plan (SIP) is an investment plan (methodology) offered by Mutual Funds wherein one could invest a fixed amount in a mutual fund scheme periodically, at fixed intervals - say once a month, instead of making a lump-sum investment.
Rupee cost averaging:
Rupee cost averaging, as this practice is called, in a way ensures that you automatically buy more units when the NAV is low and fewer when the NAV is high e.g., an SIP of ₹1000 gets you 50 units when the NAV is Rs. 20, but gets you 100 units when the NAV is Rs.10. The average cost for buying those 150 units would be Rs. 2000/150 units i.e. ₹13.33.
The Power of Compounding:
There is a great advantage with long-term investments, namely, compounding which is considered one of the greatest mathematical discovery. To put it in simple words, compounding is when the interest (or income) you earn is reinvested in the original corpus and accumulated corpus continues to earn (& grow). Every time this happens, your investment keeps growing, paving the way for a systematic accumulation of money, multiplying over time.
Starting early pays well
To get the best out of your investments, it is very important to invest for the long-term, which means that you should start investing early, in order to maximize the end returns.
Cost of Delay - Investment Corpus of ₹1.5 Cr at age of 60 years @13% p.a*
| SIP Start Age | Investment per month (Rs) |
|---|---|
| 25 Years | 1,800 |
| 30 Years | 3,500 |
| 35 Years | 6,700 |
| 40 Years | 13,300 |
| 45 Years | 27,300 |
Delay of every 5 years, doubles your SIP amt requirement to reach the same goal.
*Retirement age is assumed at 60 yrs and assumed rate of return is 13% p.a (just for example purpose).
The above is only for illustration purpose, not to be construed as guarantee for future performance.
Cost of Delay
| Particulars | Mohan | Sohan | Sohan |
|---|---|---|---|
| SIP starts @ age | 25 | 45 | 45 |
| Monthly SIP of Rs | 15,000 | 15,000 | 35,000 |
| Returns p.a. (Assumed) | 13% | 13% | 13% |
| Investment till the age of | 60 | 60 | 60 |
| Investment grows for years | 35 | 15 | 15 |
| Total investments (Rs) | 63 Lacs | 27 Lacs | 63 Lacs |
| Accumulated amount @ age 60 | 12.60 Crs | 82.40 Lacs | 1.90 Crs |
| Gap | - 11.80 Crs | - 10.70 Crs |
Cost of delay for Sohan is around 11-12 Crs