A Systematic Investment Plan (SIP) is a disciplined approach to investing where you commit a fixed amount of money at regular intervals, typically monthly. SIPs are commonly used with mutual funds, ETFs, and index funds, allowing investors to build wealth gradually without needing a large lump sum upfront. The strategy leverages the power of compounding and dollar cost averaging to grow your wealth over time.

The future value of a SIP is calculated using an annuity formula: FV = PMT × ((1 + r)^n - 1) / r, where PMT is the monthly investment, r is the monthly rate of return (derived from the annual rate), and n is the total number of months. Each monthly contribution earns returns for the remaining duration, creating a snowball effect where earlier contributions have the most time to compound.

For example, investing $1,000 per month at a 12% annual return for 10 years results in a total investment of $120,000 but an estimated portfolio value of approximately $232,339. That means $112,339 of your wealth came from investment returns alone. This dramatic growth demonstrates why starting early and investing consistently is one of the most effective strategies for building long-term wealth.