What is SIP In Mutual funds?
SIP refers Systematic Investment Plan: investing systematically on regular interval monthly/weekly /bi-weekly.
most popular one Monthly SIP.
Main Benefit: Rupee / Dollar Cost Averaging. Buying stocks on the lowest price and highest price averages the risk and return. while buying on lumpsum there is a high risk of market fluctuation.
Power of compounding: if you invested 1 Lakh per year or 10,000 per month right now 10 years it will
10,000 per month after 10 years @ 10% CAGR
For the selected rate of return, at the end of
10years, your investment of
12,00,000.00will grow to
20,65,520.20.
5,000 per month after 10 years @ 10% CAGR
10years, your investment of
6,00,000.00 will grow to
10,32,760.10.
Most mutual funds give up to 24% annual returns in 5-10 years. mostly your money will double in 3-4 years.
if you invest 1 lakh 10 years ago just once. no SIP required.
ex: 1 lakh will be double in 3 years @ 24% rate.
after 3 years 2 lakhs will be doubled @24% rate >>4 lakhs
4 lakhs will be double in next 3 years @24% rate it will be 8 lakhs.
8 lakhs will be 16 lakhs in next 3 years.
16 lakhs will be 32 lakhs and 32 to 64 to 1.28 lakh this is the power of compounding. so seeding early gets the most benefit of compounding.
Lump Sum vs SIP or STP
STP: Systematic transfer Plan switching funds on regular interval withing fund house.
SIP: Systematic Investment Plan
SWP: systematic withdrawal plan (cashing from selling units on a regular basis ie monthly)
Lump Sum: investing once at a time rather than monthly Installments.
FMP“: Fixed maturity funds close-ended Mutual fund scheme available through NPO (New fund offer)