What is SIP & SIP meaning and Benefit of SIP ( Systematic investment plan ) ?- Sip calculator

In this article, We will discuss about the Sip in Mutual fund, Sip Meaning and benefits of Sip. First, we should know how the investor change their investment strategy. Before investing in mutual fund investor used to invest their money in fixed deposit, PPF, Government bonds and other fixed investment financial products where they earned or gained fixed return from their investment. 

These days, investor change their investment strategies. they invest a small amount at regular intervals. After read this article, we will see the sip calculator and calculate the future value of investment 

What is SIP? and SIP meaning

Sip stands for systematic investment plan. It is an investment strategy or investment rout offered by mutual fund where investor invest their fixed money at a predetermined interval, typically monthly or quarterly. Here are some benefit of sip.

Benefit of SIP- Systematic Investment Plan 

  • Rupee cost averaging: Sip allow investor to benefit from rupee cost averaging. since you invest a fixed amount at regular interval, you buy more unit when price are low and fewer unit when price high this strategy help in reducing the average cost of your investment over time.
  • Diversification : Investing in the unit of a scheme provide investors the exposure to a range of securities held in the investment portfolio of the scheme in portion to their holding in the scheme. with diversification, an investor ensure that" all the eggs are not in the same basket". Consequently, the investor is less likely to lose money on all the investment at the same time. thus, diversification help reduce the risk in investment.
  • Professional Management: Mutual fund offer investors the opportunity to earn an income or build their wealth through professional management of their investible fund. Mutual fund are managed by experienced fund manager who analyse the market, research companies, and make investment decision on your behalf. This expertise can potentially generated better return compared to individual stock picking. 
  • Economies of scale: Pooling of large some sum of money from many investor makes it possible for the mutual fund to engage professional managers for managing investment. Large investment corpus leads to various other economies of scale. Mutual fund give the flexibility to an investor to organize their investment according to their convenience.
  • Liquidity: At times, investor in financial market are stuck with a security for which they can't find a buyer worse, at times they can't find the company they invested in. such investment, whose value the investor cannot easily realize in the market, are technically called illiquid investment and may result in losses for the investors. Investor in a mutual fund scheme can recover the market value of their investment, from the mutual fund itself . Depending on the structure of the mutual fund scheme, this would be possible either at any time, or during specific interval, or only on closure of the scheme.
  • Investment comfort: once an investment is made with a mutual fund, they make it convenient for the investor to make further purchase with very little documentation. this simplifies subsequent investment activity.
  • Regulatory comfort: The regulator, securities and exchange board of India ( SEBI ), has mandated strict checks and balance in the structure of mutual funds are their activities. Mutual fund investors benefit from such protection.

Example of starting SIP (systematic investment plan ) early and late

Certainly! Let's consider an example of two individuals, John and Sarah, who both want to invest in a mutual fund through SIPs but start at different times. 

Early Start SIP (Ankit )

Ankit, at the age of 25, decides to start a monthly SIP of RS 5000 in a mutual fund with an expected average annual return of 10%. He plans to continue investing until he reaches the age of 60, giving him a 35-year investment horizon.

Assuming the average annual return remains constant at 10%, here's how his investment may grow:

  • Monthly Investment: 5000 
  • Investment Horizon: 35 years 
  • Expected Average Annual Return: 10% 

By the time Ankit reaches 60, his investment could potentially grow to approximately Rs 43,09,315

Late Start SIP (RAHUL)

Sarah, on the other hand, delays her investment and starts a monthly SIP of 5000 in the same mutual fund at the age of 35. She also plans to invest until she reaches the age of 60, giving her a 25-year investment horizon.

Assuming the same average annual return of 10%, here's how her investment may grow: 

  • Monthly Investment: 5000 Rs 
  • Investment Horizon: 25 years 
  • Expected Average Annual Return: 10%

 By the time Rahul  reaches 60, her investment could potentially grow to approximately Rs 24,73,174 

As you can see from this example, even though both Ankit and Rahul invested the same amount each month, Ankit's investment had a longer time to compound and grew significantly larger compared to Rahul's investment. Starting early allowed Ankit to take advantage of the power of compounding, resulting in a larger corpus at the end of the investment period. 

This example highlights the benefits of starting a SIP early. The longer the investment horizon, the more time your investments have to grow, potentially leading to greater wealth accumulation.

click here to check SIP performance 

It's important to note that while SIPs offer several benefits, investing in mutual funds carries market-related risk, and returns are subject to market fluctuation. It is advisable to consult with financial advisor or do thorough research before making any investment decision.

Sip calculator
Download: click here: NISM Series-VA-Mutual Fund Distributors Certification Examination Workbook

It is most important to know how much I should invest monthly or quarterly to achieve our financial goals. check your sip amount, click on the below link.

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