A Systematic Investment Plan (SIP), commonly known as SIP, is an investment mode through which one can invest in mutual funds. In this blog, we are explaining all the benefits of SIP and how it can make your financial life better.
Power Of Compounding
Before we understand the power of compounding, we should learn about compound interest. Compound interest means the interest calculated on the principal amount and the accumulated interest.
Let’s see an example where we tell you how much you can earn with compound interest in the long run.
| Year | Yearly Investment (Beginn. of Yr) | Interest Earned (@10% per annum) | Wealth Accumulated At The End Of The Year |
| 1 | 1,20,000 | 12,000 | 1,32,000 |
| 2 | 1,20,000 | 25,200 | 2,77,200 |
| 3 | 1,20,000 | 39,720 | 4,36,920 |
| 4 | 1,20,000 | 55,692 | 6,12,612 |
| 5 | 1,20,000 | 73,261 | 8,05,873 |
| 6 | 1,20,000 | 92,587 | 10,18,461 |
| Total | 7,20,000 | 2,98,461 | 10,18,461 |
You have invested a total amount of ₹7,20,000 lakhs for 6 years and have made a total wealth of ₹10,18,461. This means you have earned an estimated return of ₹2,98,461. You have close to ~ ₹3 lakhs in 6 years without ever having to increase your yearly SIP amount.
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If you continue in the above example path, this is how much you will earn in the next 30 years.
| Number Of Years | Invested Amount | Wealth Accumulated |
| 10 | ₹12,00,000 | ₹21,03,740 |
| 15 | ₹18,00,000 | ₹41,93,968 |
| 20 | ₹24,00,000 | ₹75,60,300 |
| 25 | ₹30,00,000 | ₹1,29,81,812 |
| 30 | ₹36,00,000 | ₹2,17,13,211 |
In the above table, we can see how your investment of ₹1,20,000 via yearly SIPs will help you accumulate nearly ₹2.2 crores in just 30 years. This shows how compounding can work in your favour if you are consistent with your investment journey.
Convenient For Investors
Paying a large part of your salary every month towards your investments might be a difficult task for many investors. With SIPs, you can start with a small monthly sum of even ₹100 with some Asset Management Companies (AMCs). As you start to make more money, you can increase your investments as well. This flexibility will help you keep control of your money all the time.
Financial Discipline
When you opt to invest via SIP, you can rest easy, knowing that your investments will be automatically deducted from your bank account every month at periodic intervals, like daily, weekly, monthly, quarterly, etc., This allows the investors to inculcate a sense of financial discipline into their lives.
Easy Withdrawal
Apart from your SIPs in ELSS funds, your SIP investments in pretty much every other mutual fund can be withdrawn anytime you want. This helps you during emergencies. So, if you are looking to build an emergency fund, you can build one gradually using SIPs in mutual funds.
Multiple SIPs
Most investors have multiple SIPs in different mutual funds of the same amount running every month. This helps in case of sudden liquidation and using the money for emergencies. Also, this practice helps diversify your money across different kinds of funds, thus diversifying your portfolio and reducing your risk.
Skipping SIPs
If something comes up suddenly during a month, you can choose to pause your SIP payments. You can skip your SIP payments without any consequences (i.e.) no penalty. This is not the case with other saving instruments like recurring deposits, where you would be charged a penalty for skipping payments.
Stopping SIPs
SIP investments are more liquid than other kinds of financial instruments, such as fixed deposits, shares, securities, etc. You can stop an SIP payment at any time you want to withdraw your money and use it for other avenues or investments.
Invest Online
Starting an SIP in any mutual fund is pretty easy to do. You can start an SIP in a mutual fund of your choice from the comfort of your home. For example, Koshex is an all-around wealth management platform, where you can start an SIP in your favourite mutual fund, and track how your investments with ease. If you wish to start an SIP with Koshex, you can create an account with us for free and get started today.
How To Invest In Mutual Funds Through SIP?
Here’s a quick guide for you to invest in mutual funds through SIP.
Choose the right mutual fund – Research and select a mutual fund scheme that aligns with your risk tolerance, investment horizon, and financial goals.
Complete your KYC – If you need to start investing in mutual funds, you need to complete your KYC (Know Your Customer) process. This usually involves submitting your identity and address proof documents.
Select SIP amount & frequency – Decide how much you want to invest and how often i.e. every month, quarter, etc.
Start investing – Once your application is process, the SIP amount will automatically be deducted from your bank account. The amount will then be invested in the mutual fund.
Track the performance of your SIP – Regularly review your investment to make sure it is meeting your goals.
In Conclusion…
Systematic Investment Plans are an ideal investment mode for both new investors, as well as, experienced investors. It also helps you get your finances on track, stick with your budget and think twice before splurging on unnecessary things. Some AMCs even let you start an SIP in their mutual fund schemes for as low as ₹100.
We hope this article helped you understand the benefits of investing in mutual fund SIPs and how you can invest through SIP. Sign up with a Koshex and start SIP Now
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