What is a Systematic Investment Plan (SIP)?

A Systematic Investment Plan (SIP) is an investment vehicle offered by mutual funds to investors, allowing them to invest small amounts periodically instead of a lump sum over time. The frequency of investment is usually weekly, monthly, or quarterly.

How Does SIP Work?

When you start a SIP, a fixed amount is deducted from your bank account every month and invested in a specific mutual fund scheme. You are allotted units based on the Net Asset Value (NAV) of the fund for that day.

Example:
If you invest ₹5,000 monthly and the NAV is ₹50, you get 100 units. If next month the NAV is ₹100, you get 50 units. Over time, your average cost of purchase lowers. This is called Rupee Cost Averaging.

Benefits of SIP

• Disciplined Investing: Forces you to save regularly.
• Rupee Cost Averaging: No need to time the market.
• Power of Compounding: Investing for a long period allows your returns to earn further returns.
• Convenience: Auto-debit makes it hassle-free.

SIP vs Lumpsum

Lumpsum investment is a one-time investment. It is riskier because you might enter the market at a peak. SIP spreads the risk over time. For a detailed comparison, check out our guide on SIP vs Lumpsum.