SIP

SIP stands for Systematic Investment Plan. It is the simple habit of putting the same amount into an investment every month, on autopilot, so you do not have to time the market or remember to do it.

How a SIP works

You pick a mutual fund, an amount and a date, and set up an auto-debit from your bank. On that date each month the money is pulled and used to buy units of the fund at that day’s NAV. When prices are low your fixed amount buys more units; when prices are high it buys fewer. Over time this averages out your purchase price, an effect called rupee cost averaging.

Why people use it

A SIP removes two hard problems: timing and discipline. You stop trying to guess the best day to invest, and you keep investing through good months and bad without deciding each time. Because you invest a little and often, even a modest amount adds up. A ₹5,000 monthly SIP is ₹60,000 a year, and left to compound over many years the growth can dwarf what you put in. The exact figure depends on the return, which is never guaranteed.

A simple illustration

Say you invest ₹5,000 a month. In a month when the NAV is ₹50, you get 100 units. If the NAV falls to ₹40 the next month, the same ₹5,000 buys 125 units. You end up owning more units at the lower price, which helps when the market recovers. These are made-up numbers to show the idea.

What to keep in mind

A SIP is only the method; the risk comes from the fund you choose. A SIP into a market-linked fund still rises and falls in value, and spreading purchases smooths the ride but does not remove the risk. You can pause, stop or change a SIP at any time. Learn the full picture in the mutual funds and SIP guide.