Why is SIP Sabse Important Plan?

Dreams and goals are very important in our lives because it serves as a source of inspiration and a reason to put in effort for a brighter future. Dreams are not enough to get you where you want to reach. You need to work hard to achieve your dreams. A young kid who wants to represent India in some sport like cricket has to go through years of rigorous training, practice and discipline, prove himself or herself at different competitive levels (e.g. school, state, regional, national) before he / she is selected in the national team. Similarly, robust financial planning is the key to making your financial dreams come true.

How investments help to achieve your dreams

In you order to achieve your financial dreams you need step by step investment planning:

• The first step is to have clearly defined goals - (a) how much corpus you need for your goal adjusted for inflation and (b) what is the goal timeline. For example, if your child is 10 years old and you need Rs 50 lakhs for her higher education by the time she is 18, assuming 5% annual rate of inflation, your financial goal will be Rs 73.9 lakhs in the next 8 years.


• Next you need know, how much you have to save and invest to achieve your financial goal. Systematic Investment Plan or SIP is a disciplined way of investing for your financial goals. You can use Aditya Birla Sun Life Investor Education portal's Target Amount SIP calculator to determine how much you can need to invest through SIP to meet your financial goal. Continuing with the earlier example, if your higher education goal is Rs 74 lakhs (rounding up) in 8 years, you need to invest Rs 45,751 through monthly SIP (assuming 12% return on investment).


• Next step of investment planning is determining the right asset class or the right mutual fund depending on your investment need (financial goal) and risk appetite. Investment in the right class is important because the appropriate asset class will balance risk and return in achieving your financial goal. We can have different funds for different types of goals - Debt for short term, equity for long term and hybrid for medium term goals.


• As you go through different life-stages, you may have multiple goals e.g. buying your dream house, child's higher education, child's wedding, retirement planning etc. You should have one SIP for each goal.

Why SIP is Sabse Important Plan?

The simplest but most important factor in investment returns is time. This is because of the power of compounding. Consider the power of compounding formula below: -

FV = I X (1 + R)^T

Where FV = Future Value, I = Investment, R = Rate of Return, T = Investment tenure.

You can see that investment tenure (time) has exponential power in this equation. With SIP, you do not wait till you have a substantial corpus to invest. You can start your investment early in your working, by investing from your regular savings through SIP. An early start gives you a long investment tenure for your investment returns to compound.

The chart below shows the movement of Nifty 50 TRI over the last 1 year. Volatility is an intrinsic part of equity as an asset class. Furthermore, market moves are quite unpredictable - you can see that the market made multiple bottoms (circled in red). It is almost impossible to predict market tops or bottoms, in other words, timing the market is very difficult. Investors often miss out on investment opportunities as they try to time the market. SIP makes market timing irrelevant because you will be investing all levels. SIPs take advantage of market volatility through Rupee cost averaging of purchase price (NAVs) of units.

Source: NSE. Period: 30.04.2024 to 30.04.2025. Disclaimer: The above illustration is purely for investor education purposes. Past performance may or may not be sustained in the future.

Investors are humans and can have emotional biases. Greed and fear are common biases. Emotional biases can trigger irrational reactions (e.g. redeeming in bear markets etc) which can harm your financial interests in the long term. SIP brings in discipline in your investments which can keep emotions at check - you simply need to continue your SIP till your financial goal is met. SIP is the best way to put investors on auto discipline mode.

We plan for various events like birthday parties, festivals, vacations, home décor, buying a new vehicle etc. SIP helps us plan for the biggest events in life - your life stage goals e.g. buying a house, children's higher education, retirement planning. It is the Sabse Important Plan. We will go through two case studies which will illustrate this point.

Case Study - 1

Suman wanted to take an early retirement and pursue her passion of working in the social sector for education of underprivileged children. She wanted to dedicate at least 15 - 20 years towards her work on social sector. So, she wanted to be financially independent by the time she was 50.

Suman started planning for her financial independence from her late 20s. She figured out that she will need a corpus of about Rs 3 crores to achieve financial independence and maintain her lifestyle. She calculated how much she would have invest through SIP to meet her financial goal in 20 years - the amount she had to invest every month (assuming 12% return) was Rs 30,026*. At that time for her, the amount seemed to be a stretch because she and her husband had taken a home loan and were paying monthly EMIs. Suman explored the option of SIP Step Up. With an annual SIP Step Up of 10%, she figured out that she can achieve her goal with an initial monthly SIP of just Rs 15,084* - this was an amount which she would be easily able to invest.

*Aditya Birla Sun Life Investor Education portal's Target Amount SIP calculator

Friends and relatives questioned Suman, whether she would be able to increase her SIP by 10% every year. But Suman was determined to stick to her investment plan - she would make sacrifices if necessary to meet her investment commitment. From time to time, Suman also invested her one-time cash-flows from annual bonus towards her retirement planning.

By the time Suman was in her early 40s, she was reaching close to her financial goal; she thought she would get there in 2 - 3 years. Suddenly, the market crashed by nearly 20%. Her husband suggested that she redeem her investments to prevent more losses. But Suman remained disciplined. Instead of redeeming, she increased her SIP (her income had also considerably increased by this time). Suman's decision paid handsome rewards because the market rebounded. Suman reached her retirement goal of Rs 3 crores by the time she was 47, a few years ahead of what she had planned.

Case Study - 2

Akash was a bright student and had a great career ahead of him. He joined a top software firm from campus and was a strong performer. He was on a good career trajectory - along came promotions, job changes with increasing responsibility and of course, increase in income. Over the years with increase in income, his lifestyle became lavish - he neglected savings.

By the time he was around 40, upon goading by his parents, Akash consulted a financial advisor. His financial advisor told him that he needed a corpus Rs 5 crores to maintain his lifestyle after retirement. To accumulate this corpus, he needed to invest Rs 50,043* per month through SIP (assuming 12%). Akash was spending a significant part of his salary on paying the EMI of his villa, which he purchased a few years back. He was also not ready to cut down on other expenses. He waited till his salary was sufficiently high to start investing for his retirement after meeting other commitments.

When Akash was around 45, he started getting nervous about his retirement - he consulted the financial advisor again. The advisor did his calculations and told him that he needed to invest nearly Rs 1 lakh per month. This time Akash did not dilly dally. He started investing. By the time Akash was in his early 50s, his son got selected in a foreign university, something which both Akash and his wife wanted. He had a spend a considerable sum from his retirement savings to fund his son's foreign college education. Today Akash is 57 and very nervous about his retirement.

*Aditya Birla Sun Life Investor Education portal's Target Amount SIP calculator

How can SIP Step Up help delayed start or achieve bigger dreams?

At the age of 40, Akash could have met his retirement goal with an initial SIP of just Rs 25,140* (assuming 12% return) and annual SIP increment of 10%. If Akash had invested in a SIP Step Up Plan at an earlier age, he would not have had to feel nervous about his retirement. SIP Step Up can help you achieve your dreams faster or achieve bigger dreams.

Conclusion

SIP has gained tremendous popularity among retail investors in India. In March 2025, the amount invested through SIP was nearly Rs 26,000 crores (source: AMFI, as on 31st March 2025). This is a threefold increase (3X increase) in last 5 years (source: AMFI, as on 31st March 2025). In this article, we have discussed why SIP should be your Sabse Important Plan. SIP can unlock the path to your dreams. Start planning your SIP, increase it if required, so that you do not have to regret why your dreams were not met.