Understanding SIP: The Power of Monthly Investing
What is SIP?
A Systematic Investment Plan (SIP) is a disciplined way to invest in mutual funds — a fixed amount every month, regardless of market conditions. SIPs harness two powerful forces: rupee-cost averaging (buying more units when prices fall) and compounding (returns on returns).
The SIP Formula
FV = M × [(1+i)^n − 1] / i × (1+i)
Where:
- M = monthly investment
- i = monthly return rate (annual rate ÷ 12 ÷ 100)
- n = number of months
- FV = future value
The (1+i) factor at the end reflects the annuity-due convention: SIPs are debited at the start of each month.
Worked Example
₹10,000/month for 20 years at 12% expected return:
- Total invested: ₹24 lakh
- Future value: ~₹99.9 lakh
- Wealth gained: ~₹76 lakh — more than 3× your invested amount
That gap is the magic of compounding working over time.
Why SIP Beats Lump Sum for Most People
- Removes timing risk — you average into the market.
- Builds discipline — automated deductions beat willpower.
- Lower emotional stress — you stop watching the market.
Related
Use our SIP Calculator to try your own scenarios.