What is a SIP? How a systematic investment plan works
Written and reviewed by Omm · Last reviewed · General information, not investment advice
A SIP (Systematic Investment Plan) is a way of investing a fixed amount in a mutual fund at regular intervals, most often every month. You choose the scheme, the amount and the date, and the money is debited automatically from your bank account.
How a SIP works
Each instalment buys units at that day’s NAV. If you invest ₹5,000 when the NAV is ₹50, you get 100 units. Next month, if the NAV is ₹40, ₹5,000 buys 125 units. After two months you own 225 units for ₹10,000, an average cost of about ₹44.44 per unit, lower than the simple average of the two NAVs (₹45). This is called rupee-cost averaging.
It works in your favour when prices dip and you keep investing. It does not remove risk: if prices keep falling, every instalment buys at a loss for a while.
Why many people use it
- Discipline: the investment happens automatically, without trying to time the market.
- Small start: many schemes accept SIPs from ₹100 to ₹500 a month.
- Flexibility: you can stop, pause or change the amount, and a step-up SIP raises the amount every year as your income grows.
What a SIP cannot do
It cannot guarantee returns, and it cannot make a poor fund good. The result depends on the fund you pick and the length of time you stay invested. A short SIP in an equity fund can easily end below what you put in.
Measuring SIP returns
Because every instalment is invested for a different length of time, a SIP’s return is measured with XIRR, not a simple percentage. The screener’s “SIP 3Y” and “SIP 5Y” columns show the XIRR of a monthly SIP over the last 3 or 5 years. See CAGR vs XIRR vs absolute return.
Plan your own
Use the SIP calculator to project a SIP at an assumed return, or the goal SIP calculator to work out how much to invest each month for a target. The projections assume a constant return, which real markets never deliver, so treat them as a rough guide.