Guides / Investing basics

How a SIP (Monthly Investment Plan) Works

A systematic investment plan, or SIP, means putting a fixed amount into an investment at regular intervals, usually monthly. Small, regular payments can add up over many years.

The basic idea

Instead of investing one lump sum, you invest the same amount every month. Each payment starts growing from the date it is made, so the earliest payments have the most time to compound.

A worked example

Investing 5,000 a month for 10 years at an assumed 12% a year, with each payment made at the end of its month, gives a total of about 1,150,193. The amount actually paid in is 600,000, so the estimated gain is about 550,193. The currency does not change the maths.

Why regular investing is popular

• It spreads the purchase over time, so you buy more units when prices are low and fewer when they are high.
• It makes saving a habit, which is easier than finding a large sum at once.

What the estimate leaves out

A calculator assumes the same return every year. Real returns change and can fall, so the final value can be lower than estimated. Fees, taxes and inflation also reduce what the money buys.

Try it yourself

The SIP Calculator estimates the value for any monthly amount, return and number of years.