A way to invest a fixed amount in a mutual fund at regular intervals, usually monthly, instead of investing everything at once.
A Systematic Investment Plan is a standing instruction to invest a set amount in a mutual fund scheme on a fixed schedule — most often monthly, through an automatic debit from your bank account. Each instalment buys units at that day’s applicable NAV, so over time you build up units bought at many different prices.
Why it matters
An SIP turns investing into a habit rather than a decision you remake every month. It matches the way most people earn — a regular salary — and removes the pressure of finding the “right time” to invest a large sum. Because every instalment has its own purchase date, an SIP also spreads your entry across market highs and lows.
How to read it
Separate three numbers when you look at an SIP: the total amount invested, the current value, and the return. Because money went in on many different dates, the right return measure for an SIP is XIRR, not a simple percentage gain on the total invested.
Common misconceptions
- An SIP is not a product. It is a way of investing in a scheme. Risk and return depend entirely on the scheme you choose.
- An SIP does not prevent losses. If markets fall and stay down, an SIP portfolio can be worth less than the amount invested.
- Pausing is not failing. Most fund houses let you pause, change or stop an SIP. Consistency helps, but an SIP should fit your cash flow, not strain it.
In India: SIPs are usually set up with a bank mandate such as NACH or UPI AutoPay. Minimum amounts, dates and frequencies vary by scheme and fund house.
Formula
Future value of a monthly SIP (instalment at the start of each month) = P × [((1 + i)^n − 1) ÷ i] × (1 + i), where P is the instalment, i the assumed monthly return and n the number of instalments
Worked example
For illustration, assume ₹10,000 a month for 10 years at a hypothetical 12% a year, taken as 1% a month. You invest ₹12,00,000 in total, and the formula gives an illustrative value of about ₹23,23,000. Actual market returns vary from year to year and can be negative.
Figures are for illustration only — not a forecast or a recommendation.
Related terms
Rupee cost averaging
Investing a fixed amount at regular intervals, so you buy more units when prices are low and fewer when they are high.
Step-up SIP
An SIP whose instalment rises at set intervals — usually yearly, by a fixed amount or percentage — so investing keeps pace with income.
Lumpsum
Investing a single, larger amount at one time, rather than spreading it across instalments.
XIRR
Extended Internal Rate of Return
An annualised return for investments with several cash flows on irregular dates, such as SIPs, top-ups and partial withdrawals.
Compounding
Earning returns on past returns as well as on the original amount, so growth accelerates the longer money stays invested.
NAV
Net Asset Value
The per-unit value of a mutual fund scheme, worked out from the market value of its holdings after expenses and published each business day.