A Systematic Investment Plan (SIP) in mutual funds is a method of investing in which a fixed amount is invested regularly at a specified frequency, typically monthly or quarterly.
SIPs are a popular investment tool used by individuals looking to build wealth over time through the power of compounding.
The basic concept behind a SIP is quite simple. Instead of trying to time the market or make large lump sum investments, investors contribute a fixed amount at regular intervals, regardless of market conditions.
By consistently investing a set amount, investors are able to benefit from the power of compounding, which can lead to exponential growth over time.
The stock market is known for its volatility, with prices fluctuating up and down. SIPs help to mitigate the risk of market fluctuations by averaging out the cost of investing over time.
During periods of market downturns, investors are able to purchase more shares at lower prices, and similarly, during market upturns, they are able to benefit from the increase in the value of their holdings.
The magic of SIPs lies in the concept of compounding.
Compounding refers to the process of earning returns on both the initial investment and the returns that have already been earned.
Over time, this can lead to significant growth in the value of the investment. For example, if an investment experiences an 18% per annum growth rate, the initial investment of 1 lakh rupees would grow to 1.18 lakhs in the first year. In the following year, the base rate would be 1.18 lakhs, and with an 18% growth rate, the investment would grow to approximately 1.39 lakhs. Then 1.39 lac becomes base 1.39 x 18% .. base changes is a miracle, even Rs 5000 investment one time investment for 56 years become 5 crore @ 17.21 per annum compounding ( CAGR), this is power of compound, RS 65 per month saving for 56 years, earning 18% per annum CAGR, COST 44680 in 56 years, the maturity value 5 cr who understands he/she earns, who doesn’t understand who pays.
This process continues, leading to exponential growth in the value of the investment over time.
The growth rate on a new base rate each year leads to a phenomenon often referred to as the “eighth wonder of the world”, as the investment continues to grow and compound at an ever-increasing rate.
In conclusion, a Systematic Investment Plan in mutual funds starts as minimum Rs 500 per month, start and clear, understanding the power of compounding is a powerful tool for individuals looking to build wealth over time.
By consistently investing a fixed amount at regular intervals, investors are able to benefit from the power of compounding and mitigate the risk of market fluctuations.
With the potential for exponential growth, SIPs are a popular choice for long-term investors looking to achieve their financial goals.
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