Systematic Investment Plan (SIP) has emerged as the most popular way of mutual fund investment in recent times. As the name suggests, in SIP, a person invests a fixed amount over a period of time in mutual funds of his choice.
Systematic Investment Plan (SIP) has emerged as the most popular way of mutual fund investment in recent times. As the name suggests, in SIP, a person invests a fixed amount over a period of time in mutual funds of his choice. You can link your mutual fund account with your bank account, through which you can make monthly transfers to your chosen SIP. This method of investment is a good option for those who do not have a large amount to invest in a lump sum. There are many such schemes, in which the investor can start investing from Rs.500.
What are the benefits of investing in SIP?
SIP is one of the best options to invest your money as the risk of market crash is less on the individual. For those who have just entered the world of investment, this option is very good.
Investors can invest in small amounts every month under SIP without any interruption. One can also give standing instructions to the fund house for auto-debit from his bank account.
The biggest advantage of investing in mutual funds through SIP is compounding interest. Through this your returns get multiplied. That is, you earn interest on the principal amount on the interest earned on that amount. For example, if you invest Rs 1000 in a mutual fund at a rate of return of 10%, the interest earned after one year will be Rs 100. From the next year onwards, you will earn interest on Rs 1,100.
Become a millionaire like this
If you want to become a millionaire by investing in SIP in 20 years, then this can be done by investing Rs.5500 per month in SIP. You have to increase the SIP amount by 9% every year. This will help you to build more corpus.
Suppose a person starts investing Rs 5000 per month for a period of 20 years. The annual return for him is estimated to be 12 per cent. By doing this your total investment in 20 years will be Rs.12 lakhs and the accumulated corpus at the end of the tenure will be around Rs.50 lakhs. And with a 10% increase in the SIP amount, the total amount invested by you will be Rs 34.36 lakh. By the end of 20 years, your corpus will be around Rs 1 crore.
