4/28/2023 0 Comments Sip definition xe![]() Investing in equity funds through SIP is a convenient way of building wealth over time. 2x Higher returns than RDĮLSS mutual funds have the potential to provide much higher returns than bank FDs, PPF and other traditional investment options. However, it helps if you invest a higher amount through SIP if you want to attain your long term financial goals faster. It helps you start investing for your financial goals without having to wait until you accumulate a lump sum amount. Low Initial Investment: You can invest as low as Rs 500 per SIP instalment in equity funds. Moreover, the power of compounding benefit has propelled Ramesh’s investment to a massive portfolio. The primary reason for this is Ramesh has invested for a longer period of time. It is way above the accumulated corpus of Suresh, Mahesh and Uday. Inference: As you see from the table, Ramesh has accumulated a corpus of over Rs 1.5 crore. You can use ClearTax SIP Calculator to calculate the investment amount and the final corpus. The table below shows their accumulated corpus at retirement at the age of 60 years. Let's assume equity funds offer an annual return of 12%. Suppose four people, Ramesh, Suresh, Mahesh and Uday who are 30, 35, 40 and 45 years old have invested Rs 5,000 per month in equity funds through the SIP. Lets understand the power of compounding with an example. It helps if you start your SIP as early as possible and stay with your investment for the long run to enjoy the power of compounding benefit. You can invest in equity funds through the SIP to enjoy the power of compounding. The returns you now earn from the equity fund are on Rs 110 and not Rs 100 which is return on your returns. You do not take out your profit from equity funds which is effectively reinvested in the mutual fund and your total corpus is Rs 110. For example, suppose you invest Rs 100 in an equity fund which fetches you returns of 10% per annum. It is basically a return on your returns from equity mutual funds. Power of Compounding helps you magnify your returns over time. Therefore, Rupee cost averaging has helped you average out the purchase price of units over time. If you had invested a lump sum amount in January, your purchase price would have been higher at an NAV of Rs 100 and you would have bought 600 units. If you invest Rs 10,000 every month from January to June in a particular year your SIP investment could look like this.įrom the above example, the average purchase price for units of equity funds was Rs 96 (576/6) over 6 months and you purchased a total of 625 units. It means you will not be able to invest at the same NAV every month. ![]() Stock markets are highly volatile and the Net Asset Value (NAV) of the equity fund keeps changing. Lets understand Rupee Cost Averaging with an Example: Suppose you invest Rs 1000 every month in an equity fund through an SIP. You will be averaging out the purchase price of equity fund units over time thereby lessening the impact of short term market fluctuations on your investment. It helps you buy more equity fund units when the stock markets are crashing and lesser units when markets rise. ![]() You invest a fixed amount regularly across stock market levels when you invest in equity funds through the SIP. SIP helps you invest in equity funds without having to time the stock market. It gives you the convenience of starting your investment with as low as Rs 100 a month. You can invest in a disciplined and phased manner through an SIP. It’s simple and the most convenient way of investing in mutual funds. With an SIP, you can get started with your investment with a small amount and reap significant returns in the long run. Benefits of investing in mutual funds via SIP
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