What is a Systematic Investment Plan?

What is a Systematic Investment Plan?

Who in the world is not after growing their money? We all want to double, triple and quadruple whatever we earn. Most of us even think about retiring at an early age and thus follow up some plans. Some think about short-term investment plans while others think for the long term. Amongst these, one common thing is savings.

Money divides, and it grows. Just like we plant which grows up from a seedling to a fruitful tree after years of caring and efficient tenderness, money also grows that way. Soon during the pandemic, we saw the ups and downs of the market that made peoples completely understand the value of saving money.

The way we treat money is crucial for the long run if you have a dream of buying your favorite car or retirement plans and many more. People are now valuing money more than anything, and thus the entire world is driven by it. As a result, the more you save money, the more it will grow, and you will be capable of doing whatever you want.

Nowadays, we can see people investing a lot in different mutual funds which gives them an average interest rate of 12%-13%. There are several ways of investing in it:-

Systematic Investment Plan (SIP).
• Systematic Withdrawal Plan (SWP).
• Lump-sum investment
• Dividend Transfer Plan (DTP).
• Systematic Transfer Plan (STP).

One of the most common and convenient ways of investing in mutual funds is SIP (Systematic Investment Plan). Let us talk about this in brief.

How does SIP work?

As the word ‘Systematic Investment Plan’ suggests, one can invest in funds systematically. It can be weekly, monthly, quarterly, half-yearly, yearly, etc. The investor can choose the plan and the amount as per their convenience. It will be auto deducted from the mode of payment chosen by you.

Apart from these, one can also choose a particular date of transaction. Thus, the deduction will be made only on that date. You can start investing from as low as Rs. 500 to as high as you want. Likewise, you can choose the tenure of the plan.

Systematic Investment Plan works depending upon the market fluctuations. It is based on NAV (Net Asset Value) where you are issued the number of units as per the amount. Once the price is high per unit value, there are more units purchased else fewer units purchased in case the price is low.

There are two major benefits of SIP:-
1. Rupee-cost averaging.
2. Power of compounding.

Let us discuss them in brief.

What is ‘Rupee-cost averaging’?

Since the market keeps on fluctuating, one needs to guess whether the prices are getting high or less. Thus, it becomes a mind scratching while they must sell during high prices and buy during low prices. SIP helps in buying fewer units when the price is high and more units when the price is low. Thus, one can achieve the unpredictable market and get the best deal.

What is the ‘Power of compounding’?

The first name in ‘Power of compounding’ that comes to mind is Warren Buffet who is one of the most renowned investors of all time. Compounding mainly concentrates on the formula of compound interest that is: –
A = P (1 + r/n)^(nt) – P

Where A = Amount received.
P = Principal Amount.
r = Rate of interest.
n = Compounding Frequency per annum.
t = Time (in years).

As early as you start investing, the more return you get. You can calculate the return based on this formula. Through SIP, you can get a return based on the calculation of compound interest.


Although many investment plans are available, it entirely depends upon you as what you choose. However, you need to be consistent with that. It might take a little longer to achieve the desired result, but the longer you wait, the sweeter you taste. We can say that the waiting of growing money will be worthwhile. But make sure to choose the most suitable plan depending upon your capacity and tendency to carry on the frequent investment.

In case you need more information about such investment plans that can bring you a fruitful outcome, then you can take the help of advisors who have expertise in these fields. You can check the website Financial Planner | Financial Advisor | Wealthcare India to get the assistance of the best financial advisors in New Delhi.


CA Mukesh Gupta
CA Mukesh Gupta
Mukesh Gupta is the founder and director of Wealthcare. He is Fellow chartered accountant, Certified Financial Planner and Certified Public Financial advisor. He is in financial services industry since 1994. He conducts free money management sessions for corporates and associations on topics related to Personal finance. His previous engagement was with Birla Sunlife group. He regularly writes on topics related to Personal finance and occasionally appear on electronic media.

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