What is SIP? A Beginner's Guide to Systematic Investment Plan

What is SIP?

A Systematic Investment Plan (SIP) is a method of investing a fixed amount regularly in a mutual fund scheme. It is similar to a recurring deposit where you deposit a fixed amount every month.

How Does SIP Work?

When you invest through SIP, a fixed amount is automatically deducted from your bank account every month and invested in your chosen mutual fund. You receive units based on the NAV (Net Asset Value) of that day.

Power of Rupee Cost Averaging

When markets are down, your fixed SIP amount buys more units. When markets are up, it buys fewer units. Over time this averages out your purchase cost, reducing the risk of market timing.

Benefits of SIP

SIP offers multiple advantages for investors of all income levels. It instills financial discipline, requires no market timing, and harnesses the power of compounding over time.

Compounding in SIP

The returns you earn get reinvested and generate further returns. Over a long period of 10-20 years, this compounding effect can multiply your wealth significantly.

How to Start a SIP?

Starting a SIP is simple. Choose a mutual fund based on your goal and risk appetite, complete your KYC, select the SIP amount and date, and link your bank account. Most platforms allow you to start a SIP with as little as ₹500 per month.

Common Mistakes to Avoid

Many investors stop their SIP during market downturns, which is the worst thing to do. Market corrections are actually the best time for SIP as you accumulate more units at lower prices.