Investing in India is no longer just about fixed deposits or saving for a rainy day. In today’s world, many people want their money to work smarter, not just harder.

That’s where Systematic Investment Plans, or SIPs, have changed the way millions invest. Whether someone is starting their first job, managing a family budget, planning bali trip or planning for retirement, SIPs offer a simple yet powerful path to long-term wealth creation.

But what exactly is an SIP? How does it work? And how can you calculate what you’ll get from it?

This guide will walk you through the core concepts, help you understand how SIPs adapt to different life stages, and show you how to estimate your future wealth using an SIP calculator - step by step.

What is SIP (Systematic Investment Plan)?

Method of investing a fixed amount of money at regular intervals, generally monthly into a mutual fund scheme of your choice.

So, instead of waiting to save up a large amount, SIP allows you to start small and stay regular. For example, someone might invest ₹1,000 or ₹5,000 every month from their salary. That amount is automatically debited from their bank account and used to buy units of the fund.

Over time, SIP benefits from:

Compounding-

Process where the earnings from an investment (interest, dividends, or capital gains) are reinvested to generate more earnings over time.

Let’s see how compounding works with SIP:

In the 1st Month, you invest ₹10,000.

In the 2nd Month , you again invest ₹10,000 but the first ₹10,000 has already grown a little, say to ₹10,120.

In the 3rd Month, you invest another ₹10,000 now your previous amounts (₹10,120 and ₹10,000) have both grown slightly more.

This keeps happening every month.

So, your old investments grow and you keep adding new money thus, money grows faster over time.

Rupee Cost Averaging-

An investment strategy where you invest a fixed amount of money at regular intervals, regardless of the market price due to which you can buy more units when prices are low and fewer units when prices are high, averaging out your cost over time.

Let’s see how Rupee Cost Averaging works:

Total Investment = ₹50,000
Total Units Purchased = 1,550
Average Cost per Unit = ₹50,000 / 1,550 ≈ ₹32.26
So even though the price went up and down, your average cost is lower than the highest NAV.

Formula to calculate SIP

[ FV=P × ([1 + r]^n – 1) / r × (1 + r)]

FV is the amount you receive upon maturity.
P is the amount you invest at regular intervals.
n is the number of payments you have made.
r is the periodic rate of interest

SIP Examples – How Wealth is Created Over Time

Here are a few examples to help you visualize how SIPs grow:

Example 1: ₹5,000/month for 10 years @ 12%
You invest ₹10,000 per month in a mutual fund SIP and you generate an average annual return of 14% for 10 years. So now let’s break it down.

If you invest just ₹12 lakh over 10 years, the power of compounding can help you earn a profit of ₹13.90 lakh thats a 116% return on your investment. In contrast, if you had invested for just 1 year with ₹1.2 lakh, you would have earned only ₹8,007 as profit, a return of just 6.67%. This shows ho w long-term investing significantly boosts returns through compounding.

Types of SIP – Which One Matches Your Style?

SIPs are not limited to just one format. Depending on your income pattern, goals, or flexibility needs, there are several variations you can choose. Below is the list of types of SIP -

1. Regular SIP

This is the most straightforward type. You choose a fixed monthly amount - say ₹3,000 - and invest it every month for a selected number of years.

For example, Rohan, a 28-year-old software engineer, sets up a Regular SIP of ₹3,000/month in a diversified equity fund. He continues this without changing the amount for the next 10 years.

Its perfect for those who prefer steady and predictable investing.

2. Top-Up SIP (Step-Up SIP)

As your income grows, so can your SIP. This type lets you increase your investment amount at regular intervals - usually yearly.

For example, Priya starts with ₹5,000/month and chooses to increase it by ₹500 every year. By her fifth year, she’s investing ₹7,000/month.

This approach helps investors gradually increase their commitment without feeling the pinch.

3. Flexible SIP

If you’re a freelancer or running a small business and your income varies, a flexible SIP would be a great choice for you as it will let you adjust your investment amount or skip months when needed.

For example, Sameer, a wedding photographer, might invest ₹7,000 in a busy month and ₹2,000 in a slower one, skipping months where income is uncertain.

This option provides breathing room without forcing a fixed schedule.

4. Trigger SIP

This is designed for investors who want to invest based on specific events or conditions like a market dip or a certain NAV level.

For example, Neha sets up a SIP that only triggers when the Nifty index drops below 18,000. She wants to take advantage of lower valuations during market corrections.

While powerful, this method suits experienced investors who understand market trends and timing.

5. Perpetual SIP

Most SIPs are created for a fixed period like 3 or 5 years. A perpetual SIP, however, doesn’t have an end date. It continues until you decide to stop it.

Example: Ajay wants to invest for retirement, which is 25 years away. Instead of selecting a 5-year term, he starts a perpetual SIP and reviews it every few years.

This is ideal for long-term financial goals without a specific deadline.

6. Multi SIP

Instead of setting up separate SIPs for each mutual fund, a Multi SIP allows you to invest in multiple funds in one go.

For instance, Ritu wants to invest ₹10,000/month split across 3 funds. She sets up a Multi SIP to divide ₹4,000 into a large-cap fund, ₹3,000 into a mid-cap fund, and ₹3,000 into a hybrid fund.

It helps manage diversification with less effort.

7. SIP with Insurance

Some mutual fund houses offer a free life insurance cover along with SIPs if you commit for a minimum term typically 3 years.

Example: Karan starts a ₹4,000/month SIP in a fund that includes life insurance cover of up to ₹10 lakh. It’s an added benefit while staying invested.

While not a substitute for full-term life insurance, it’s a thoughtful bonus for long-term investors.

Benefits of SIP – Why It Works for Most Investors

SIP works silently in the background, helping you stay committed to your financial journey. Its benefits go beyond numbers and touch on mindset, planning, and discipline.

Let’s understand how SIP truly adds value:

1-1- Encourages Regular Investing

By investing a fixed amount on a regular basis, you start relating investing to a routine behavior similar to the payment of bills or saving rent. With time, this habit forms a solid financial base.

2- Reduces the Stress of Market Timing

Since SIP spreads investments across different time periods, it automatically purchases more units when prices are less and less when theyre high. By doing so, it reduces the effects of volatility, particularly in volatile markets.

3- Grows with Compounding

The sooner, the better. SIPs help your money grow, not only from returns but also from the returns on those returns. This compounding effect, over time, becomes a huge wealth creator.

4- Adapts to Life’s Journey

As you move ahead in life, switch jobs, increase your income, or experience financial fluctuations your SIP can be easily modified accordingly. Whether its increasing contributions or changing fund options, SIP provides space to grow.

5- Aligns with Financial Goals

You can start SIPs with specific goals in mind such as a child’s education, down payment for a house, or retirement planning. With a clear time frame and expected return, SIPs help convert vague dreams into achievable milestones.

What is an SIP Calculator and How Does It Help?

An SIP calculator is a simple tool that tells you what your investments might look like in the future. All you need to enter is:

Monthly investment amount (like ₹5,000)

Investment period (like 10 years)

Expected annual return (like 12%)

In seconds, it shows you:

How much will you invest in total ?

How much your money can grow ?

The maturity value you can expect at the end ?

It’s not a promise - just a projection. But it gives you a roadmap to plan better.

How to use Finanjo’s SIP Calculator – Step-by-Step

Enter your monthly SIP amount (e.g., ₹3,000)

Choose your investment period (e.g., 10 years)

Select an expected return (e.g., 10%)

It will calculate and dynamically update the graph and the values.

Tips to Make the Most of SIP

Start early – even if the amount is small

Review once a year – make sure your fund is performing well

Gradually increase your SIP – especially after salary hikes

Avoid stopping in bad markets – downturns often lead to better returns later

SIPs work best when they’re treated as a long-term journey, not a short-term bet.