Somebody explain how SIP works unable to find the needed answer after googling

[lucky10101]

Hi Friends, this may be a simple question to ask but couldnt understand the below concept in SIP
(a) Power of compounding
(b) Rupee average cost
Please some one provide me link or explain with example.
Lets say in case of Bank FD after each year we get interest and that interest is added to principle amount and that becomes the new principle amount on which the next interest is calculated this is what the power of compounding i understand but how does the power of compounding works in SIP

I w ill be happy if someone clears my doubt.
Thankyou

 

[appajib]

Hi Friends, this may be a simple question to ask but couldnt understand the below concept in SIP
(a) Power of compounding
(b) Rupee average cost
Please some one provide me link or explain with example.
Lets say in case of Bank FD after each year we get interest and that interest is added to principle amount and that becomes the new principle amount on which the next interest is calculated this is what the power of compounding i understand but how does the power of compounding works in SIP

I w ill be happy if someone clears my doubt.
Thankyou

In SIP, an equal amount will be deducted in particular time period (say weekly, monthly, half-yrly etc) from ur a/c and for that amount Mutual fund units or shares of particular scrip will be allotted with respective to their market value equal to deducted amount...so over period of time u can get the good number of shares..so capital appreciation of market value of shares or MF will help at the end..but there is no compounding effect here..