How a SIP works
With a Systematic Investment Plan, you authorise a fixed amount, say Rs 5,000, to be invested in a chosen scheme on a fixed date every month. The amount buys however many units that day's NAV allows, automatically via bank mandate. No timing decisions, no remembering to invest.
Why investors use it
- Rupee-cost averaging: You buy more units when NAVs are low and fewer when high, smoothing your average cost over time.
- Discipline: Investing is automatic and behaviour-proof, which matters more than most people expect.
- Accessibility: Many schemes allow SIPs from as little as Rs 100-500 a month.
What a SIP is not
A SIP is a method of investing, not a product or an asset class. It does not guarantee profit and does not protect against losses in a falling market. The fund you choose still determines your outcome.
Measuring SIP returns
Because each instalment is invested for a different duration, SIP returns are measured with XIRR, not simple CAGR. Tax treatment depends on the underlying fund (equity vs debt) and is applied to each instalment by its own holding period. Explore concepts further in the glossary.