A Systematic Investment Plan (SIP) is an automatic investment plan that allows you to invest a set amount in your preferred mutual funds at regular intervals. Significantly, it works in the same way as a recurring deposit in a bank, assuring a consistent investment process.

One of the most significant benefits of a SIP is the convenience it gives. The stated amount is automatically sent from your savings bank account to the mutual fund of your choice at the intervals you specify, whether daily, weekly, monthly, or quarterly. You choose the frequency, although monthly SIPs are the most popular because they match with your salary cycle.

SIPs are notable for their capacity to create big gains over time with a little initial investment. According to a FundsIndia research, saving just Rs 1,000 per month might result in huge rewards over time. If you invested Rs 1,000 per month in an equity SIP at 12% per year for 30 years, you would have only invested Rs 3.6 lakhs. However, the value of your portfolio would have increased to an amazing Rs 34.9 lakhs.

If you invested for a shorter period of time, say 20 years, you would invest Rs 2,40,000, but your portfolio worth would be Rs 9.89 lakh. A ten-year investment of Rs 1,000 a month would equal Rs. 2,30,038 versus Rs. 1,20,000 invested over the same time period.

SIPs allow for greater investment flexibility. Depending on your risk tolerance, you can invest in large cap, mid cap, or small cap funds. What actually distinguishes SIPs is the ability to create wealth through the power of compounding.

Essentially, you earn returns not just on the amount invested, but also on the gains, because the earnings are reinvested back into the fund. By contributing on a regular basis through a SIP, you allow little investments to compound into a large total over time, demonstrating the multiplier effect of compounding. According to a FundsIndia research, the longer your money is invested, the higher this effect increases.