1. Introduction - What are SIPs?

Systematic Investment Plan (or SIP) is a powerful tool that allows investors to make small investments over time to build a long- term corpus. Investors commit to making regular investments at uniform intervals (such as once a month) into a pre-selected Mutual Fund scheme. This is as opposed to the other alternative manner of investing which is basically, ad-hoc investments linked to market sentiment or availability of a sufficient surplus.

2. What are the benefits of SIPs?

The most significant power, as well as a benefit of the SIP is its simplicity. It is basically, a recurring investment that an investor commits to for the medium to long- term. By pre-committing to the SIP, the investor is removing the risk of emotions or laziness affecting their financial goals. For example, an investor can sign up for a SIP, investing into a particular Mutual Fund scheme monthly on the 7th of every month for the next five years. Being a regular investment tool, it works well with relatively small amounts as well. These small allocations, on a consistent basis, can add up to a significant corpus over time, when combined with the power of compounding achieved by the investment. Additionally, it frees investors from worrying about market volatility and from trying to time the market.

3. So can SIPs help navigate market ups and downs?

Absolutely! In fact, the strongest point of SIP is that the investor commits to putting the same value into the market consistently, each time. Since investments are spread out over time, any changes in the market are averaged out while making the investment. In other words, assuming that the SIP amount is Rs. 2,000 on a monthly basis, the number of units of Mutual Fund that 2,000 Rupees will buy will be lower when the markets (and hence the per unit value of the MF) are higher. Conversely, the number of units that the same Rs. 2,000 buys go up when the market (and the per unit value of MF) is down. This allows investors to average their cost of acquisition and turns one of their biggest concerns from the market into a source of advantage for their portfolio.

4. What are SIP calculators?

These are tools that are available on several websites that allow you to simulate how your SIP investments will play out over time, assuming different return scenarios. These SIP calculators are especially useful when investors want to use SIPs for achieving a specific financial goal and can help them decide how much amount to set aside every month in to the SIP.