Are you also thinking of starting SIP? Here's what you need to know

What is SIP?

It is a systematic investment plan, an investment vehicle offered by many mutual funds to investors, allowing them to invest small amounts periodically instead of lump sums. The frequency of investment is usually weekly, monthly or quarterly.In SIPs, a fixed amount of money is debited by the investors in bank accounts periodically and invested in a specified mutual fund. The investor is allocated several units according to the current Net asset value. Every time a sum is invested, more units are added to the investor’s account.

The strategy claims to free the investors from speculating in volatile markets by dollar cost averaging as the investor is getting more units when the price is low and fewer units when the price is high. In the long run, the average cost per unit is supposed to be lower.

SIP claims to encourage disciplined investment. SIPs are flexible; the investors may stop investing in a plan anytime or may choose to increase or decrease the investment amount. SIP is usually recommended to retail investors who do not have the resources to pursue active investment.

How does it works?

Imagine you wish to invest Rs. 5,000 per month for 10 years. The expected rate of return is 10%. You need to input these values in the specified boxes, and the calculator gives you the corpus you would earn.In this case, you would earn a total corpus of Rs. 9.3 lakhs. If you were to increase the investment amount to Rs. 6,000, you would earn Rs. 11.3 lakhs.

This is how you can calculate the values to see how your investments would turn out.Some calculators also include an additional input known as the ‘Adjust for Inflation’ button. You can use this option if you don’t know the future value of your goal after taking inflation into consideration.

You can easily start your SIP at your early age as it does not require much investment. You can start your SIP with a minimum amount of Rs. 500 only. Some experts also says that if you are at the age of 23 and starts investing in SIP you can have Rs. 1 crore in 20-30 years. SIP is the best plan for long term investments. It is safe and secure too.

You can choose either ‘yes’ or ‘no’. If you select yes, the calculator incorporates the inflation rise into the calculations. If you choose no, you get the estimates without inflation.It is always better to incorporate inflation into the calculations because it gives you a more realistic value of the earnings. Some calculators also give you a graphical view of how your earnings would grow over the investment tenure.