SIP allows investors to invest fixed amounts at regular intervals, promoting disciplined investing. By averaging out the cost of investment over time, SIPs mitigate the need for market timing and facilitate wealth accumulation over the long term.
Imagine you’re a young professional named Sarah, eager to start investing for her future financial goals. Sarah decides to invest in the “ICICI Prudential Blue-chip Fund” through SIP, committing to invest Rs5,000 every month. Here’s how Sarah’s SIP journey unfolds:
Month 1
Sarah initiates her SIP with an investment of Rs5,000 when the NAV of the fund is Rs50. She receives 100 units of the mutual fund.
Month 2
The NAV of the fund drops to Rs45 due to market fluctuations. Sarah’s Rs5,000 investment now fetches her approximately 111 units.
Month 3
The market experiences volatility, causing the NAV to rise to Rs55. Sarah’s investment of Rs5,000 now buys her around 91 units.
Month 4
The NAV stabilizes at Rs60, and Sarah continues her SIP, acquiring approximately 83 units.
Month 5
Sarah’s SIP journey continues, with the NAV fluctuating between Rs 55 and Rs 65. Despite market uncertainty, she consistently invests Rs 5,000 each month, accumulating more units when the NAV is low and fewer units when it’s high.
Over time, Sarah’s SIP investment strategy allows her to benefit from rupee-cost averaging. By investing a fixed amount regularly,
she averages out the cost of purchasing units, reducing the impact of market volatility on her investments. Additionally,
SIP instills discipline in Sarah’s investment approach, as she continues her contributions irrespective of market fluctuations.
As a result, Sarah gradually builds a considerable mutual fund investment corpus, inching closer to her long-term financial
goals with each SIP installment.