How does SIP work?

The Beauty of Averaging

Suppose that you invest INR 500 every month. In a given month, if the Net Asset Value (NAV) of your fund is INR 50 per unit, you will be able to accumulate only 10 units. In another month, if the NAV goes down by INR 10 per unit, you will be able to gather 12.5 units for the same price. If you were to calculate the average price per unit, it would come close to INR 45 per unit. This concept is called the Rupee Cost Averaging.

It is important to remember here that Rupee Cost Averaging is not a guaranteed way to make more money or eliminate risks. By staying invested irrespective of market conditions, you may be able to accumulate wealth over the long-term.

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The Magic of Compounding

Assume you are investing INR 1500 each month through a SIP. At the end of year one, if the rate of interest remains more or less consistent at 10% PA, you will make INR 19,800. If you stay invested, in the second year, you will make close to INR 42,000*. In the fifth year, you will make close to INR 1,18,000 with an investment of just INR 90,000. This is the math of compounding. SIP works on the principle of compounding to generate wealth.

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*The calculations provided are based on assumed rate of return(s) and meant for illustration purposes only. The examples do not purport to represent the performance of any security or investments. In view of individual nature of tax consequences, each investor is advised to consult his/ her own professional tax advisor before taking any investment decision. Mahindra Manulife Investment Management Private Limited [Formerly known as Mahindra Asset Management Company Private Limited] makes no warranty about the accuracy of the calculations provided herein.