Glossary
SIP (Systematic Investment Plan)
A fixed monthly mutual-fund investment that averages your cost across market cycles.
Definition
A Systematic Investment Plan (SIP) is a method of investing a fixed amount into a mutual-fund scheme at regular monthly intervals. SIPs spread the buy across high and low market days, lowering the average cost per unit. They use the standard end-of-period annuity formula to project future value over a horizon.
Formula
FV = P × [((1+i)^n − 1) / i] × (1+i)
P = monthly investment, i = monthly rate (annual % ÷ 12 ÷ 100), n = tenure in months.
Key points
- Minimum SIP for most retail mutual funds is ₹500 per month.
- Long-horizon equity SIPs in India typically project 10–14 % annualised returns.
- SIPs are subject to market risk; the calculator output is nominal, not inflation-adjusted.
- Long-term capital gains above ₹1 lakh/year attract 10 % LTCG tax.
Worked example
A ₹5,000 monthly SIP at 12 % annualised return over 20 years invests ₹12 lakh and is projected to be worth roughly ₹50 lakh — the bulk of which is market gains, not your contribution. The same SIP started 5 years late ends near ₹25 lakh, demonstrating how compounding rewards starting early more than investing more.
Related
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