Understanding Systematic Investment Plan (SIP)
A SIP is a method of investing in mutual funds where an investor contributes a fixed amount regularly. It's a disciplined approach to wealth creation that leverages the power of compounding and rupee cost averaging.
How SIP Works?
Every month, your bank account is debited, and units of your chosen mutual fund are purchased at the prevailing Net Asset Value (NAV). When the market is high, you buy fewer units; when it's low, you buy more. Over time, this averages out your cost of investment.
FV = P × [ (1 + i)n - 1 ] / i × (1 + i)
(Where P is monthly investment, i is monthly return rate, and n is total months)
Benefits of Using a SIP Calculator
- Goal Planning: Helps you determine how much to invest to reach a specific financial goal.
- Power of Compounding: Visualizes how your money grows over long periods.
- Realistic Expectations: Provides a mathematical estimate of potential returns based on historical market performance.