What is a SIP?
A Systematic Investment Plan (SIP) is a method of investing a fixed amount in a mutual fund at regular intervals — typically monthly. Instead of investing a large lump sum at once, you invest small amounts consistently, which reduces the impact of market volatility through rupee cost averaging.
How does SIP compounding work?
Compounding means your returns earn further returns. In a SIP, each month's investment grows independently. After 10 years of ₹5,000/month at 12% returns, you'd have invested ₹6,00,000 but your portfolio would be worth significantly more — because each rupee invested earlier has had more time to compound.
The longer your investment period, the more dramatic the compounding effect. The last few years of a long SIP contribute far more to wealth creation than the early years.
Frequently asked questions
What return rate should I use for equity mutual funds?
Indian equity mutual funds have historically returned 12-15% over long periods (10+ years). For conservative planning, use 10-12%. For mid/small cap funds, historical returns have been higher but with more volatility. Past returns don't guarantee future performance.
How much should I invest in SIP each month?
A common guideline is to invest 20% of your take-home income. But start with whatever you can sustain consistently — even ₹500/month is better than nothing. Increase your SIP amount by 10% each year as your income grows (step-up SIP).
Is SIP better than lumpsum investment?
SIP is generally better for most investors because it removes the need to time the market, creates a savings discipline, and averages out the cost of investment over time. Lumpsum investing can outperform SIP in a consistently rising market, but requires market timing skill and a large initial corpus.