SIP, or Systematic Investment Plan, is a simple and disciplined way to invest in mutual funds.
In this, you invest a fixed amount every month or week, rather than investing a large sum all at once.
This method is especially beneficial for those who want to build a large corpus by making small investments over a long period of time.
How does a SIP work?
In a SIP, you invest a fixed amount (such as ₹500, ₹1000, or more) every month.
This amount automatically goes into your chosen mutual fund, and fund units are purchased with that money.
When the market is down, you receive more units, and when the market is up, you receive fewer units.
This is called “Rupee Cost Averaging.”
In the long run, this method protects your investment from market fluctuations and helps generate better returns.
Types of SIPs
- Regular SIP – A fixed amount is invested every month.
- Top-up SIP – You can increase your SIP amount every year, so your investment grows as your income increases.
- Flexible SIP – You can increase or decrease your investment amount as per your convenience.
- Perpetual SIP – There is no fixed end date, meaning you can stop investing whenever you wish.
Benefits of SIPs
Big savings from small investments – With SIPs, you can start with a small amount and gradually build a large corpus.
Disciplined investment – Regular monthly investments help develop the habit of saving.
Rupee Cost Averaging – Provides better returns on average despite market fluctuations.
Power of Compounding – The longer you invest, the faster your money grows.
Flexibility – You can start or stop a SIP at any time.
Difference between SIP and lump sum investment
Basic SIP Lump sum investment
Investment method Regular investment in small installments Large amount invested at one time
Low risk High
Market timing not required Choosing the right time is essential
Start easily from small amounts to large amounts
How much profit can a SIP generate? (Example)
Suppose you invest ₹5,000 per month for 15 years in a fund with a 12% annual return—
you could end up with over ₹2.5 million, while your total investment would be only ₹9 million.
The magic of compounding is what makes SIPs special.
Things to keep in mind with SIPs
Choose the right mutual fund.
Continue the SIP for a long period (5 years or more).
Don’t stop investing even when the market is falling; this is the real opportunity.
Define your SIP amount based on your goals.