What is SIP?
A Systematic Investment Plan (SIP) is a method of investing a fixed amount in a mutual fund at regular intervals — typically monthly. Unlike a lumpsum investment, SIP spreads your purchases across market levels, reducing the impact of short-term volatility through rupee-cost averaging.
How SIP Returns Are Calculated
SIP returns are typically expressed as XIRR (Extended Internal Rate of Return) rather than simple percentage returns, because each SIP installment has a different investment duration. For example, your first SIP installment (invested 10 years ago) compounds for the full 10 years, while last month's installment has only 1 month of growth.
The SIP return formula computes the single annual rate that makes the net present value of all cash flows (installments) equal to the current portfolio value. This is XIRR.
The Power of Compounding in SIPs
Consider investing ₹10,000 per month for 20 years at 12% annual return (approximate long-term Nifty 50 CAGR):
- Total investment: ₹24 lakh
- Estimated corpus: approximately ₹91 lakh
- Returns earned: approximately ₹67 lakh — nearly 2.8x your principal
This illustrates the power of staying invested over long periods. Starting at age 25 vs age 35 can result in a 2x–3x larger corpus by retirement, even with identical monthly contributions, due to the extra decade of compounding.
Rupee-Cost Averaging Explained
When markets fall, your fixed SIP amount buys more units. When markets rise, it buys fewer units. Over time, your average cost per unit becomes lower than the average market price — this is rupee-cost averaging. It removes the need to time the market.
Example: ₹5,000/month in a fund with NAV of ₹100 in January buys 50 units. In February, NAV drops to ₹80 — the same ₹5,000 buys 62.5 units. Average cost = ₹5,000 × 2 / (50 + 62.5) = ₹88.9, which is below the average of ₹100 and ₹80 (₹90).
Step-Up SIP
A step-up (or top-up) SIP increases your monthly investment by a fixed percentage each year — typically 10–15% to match salary increments. A step-up SIP of ₹10,000/month growing at 10% per year can generate significantly more wealth than a flat SIP over 15–20 years.
Which SIP Amount Should You Start With?
Financial planners generally recommend investing 15–20% of monthly income via SIP. Use IPOpulse's SIP calculator at /calculators/sip to simulate corpus projections with your actual income, investment amount, and expected returns.