What is a Systematic Investment Plan (SIP)?
A Systematic Investment Plan (SIP) is a method of investing a fixed amount regularly (monthly, quarterly, etc.) into a mutual fund scheme. It's like a recurring deposit, but instead of earning fixed interest, your money is invested in the stock and bond markets.
Key Definition
SIP = Regular + Fixed Amount + Mutual Fund Investment = Disciplined Wealth Building
Why SIPs Are Popular in India
SIPs have become incredibly popular because they solve several challenges faced by average investors:
Accessibility
Start with as little as ₹500 per month. No need for large lump sums.
Automation
Auto-debit from your bank account. Set it and forget it approach.
Discipline
Removes emotional decision-making. Invest consistently regardless of market conditions.
Growth Potential
Benefit from compounding and market-linked returns over long term.
How SIPs Work: Step-by-Step
Choose a Mutual Fund
Select a fund that matches your goals and risk appetite (equity, debt, hybrid, etc.)
Decide Investment Amount
Pick a monthly amount you can comfortably invest (₹500, ₹1,000, ₹5,000, etc.)
Set Auto-Debit Date
Choose a date each month when money will be automatically debited from your bank
Units Are Allocated
On the chosen date, your amount buys units at the current Net Asset Value (NAV)
Repeat Monthly
Process repeats automatically every month, building your investment over time
The Magic of Rupee Cost Averaging
One of SIP's biggest advantages is rupee cost averaging. Since you invest a fixed amount regularly, you automatically:
- ✓ Buy more units when prices are low (market down)
- ✓ Buy fewer units when prices are high (market up)
This averages out your purchase cost and reduces the impact of market volatility.
Example: Rupee Cost Averaging in Action
| Month | Amount Invested | NAV | Units Bought |
|---|---|---|---|
| Jan | ₹5,000 | ₹100 | 50.00 |
| Feb | ₹5,000 | ₹80 ↓ | 62.50 ↑ |
| Mar | ₹5,000 | ₹90 | 55.56 |
| Apr | ₹5,000 | ₹110 ↑ | 45.45 |
| Total | ₹20,000 | Avg: ₹95 | 213.51 units |
Notice: You bought MORE units in Feb when price dropped, averaging out your cost!
Tax Benefits with ELSS SIPs
If you invest in ELSS (Equity Linked Savings Scheme) funds through SIP, you get additional benefits:
verified Tax Deduction
Up to ₹1.5 lakh deduction under Section 80C
Save up to ₹46,800 in taxes (in 30% tax bracket)
lock_open Short Lock-in
Only 3 years lock-in period
Shortest among all 80C investment options
Flexibility Features of SIPs
Modern SIPs offer incredible flexibility to suit your changing needs:
- add_circle Step-Up SIP: Automatically increase your SIP amount by a fixed percentage every year (e.g., 10% annual increase)
- pause_circle Pause/Resume: Temporarily pause your SIP for a few months without canceling it
- edit Modify Amount: Increase or decrease your monthly investment amount as per your financial situation
- cancel Stop Anytime: No penalty for stopping your SIP (except ELSS lock-in applies to invested amount)
Ready to Start Your SIP Journey?
Use our SIP Calculator to see how your monthly investments can grow over time with the power of compounding.