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What is SIP? Learn Systematic Investment Plan in Simple English (2025)

Systematic Investment Plan infographic showing monthly SIP, rupee cost averaging, compounding, and mutual fund growth


If you ever wondered about starting to invest a little each month, then SIP or Systematic Investment Plan could be your best bet. Whether you're an investor starting out or you're simply looking for a disciplined method to increase your wealth, SIP is a convenient and effective way to invest in mutual funds. Here, we'll explain everything you'll ever need to know about SIP in simple words.

What is SIP (Systematic Investment Plan)?
SIP is an investment strategy for investing in mutual funds where you make a regular, periodic contribution—a monthly, a weekly, or a quarterly contribution—instead of a one-time lumpsum contribution.

Rather than attempting to time the market, SIP enables you to make small investments over a period. It develops a culture for disciplined investing and enables you to benefit from the fluctuations in the market through a strategy referred to as Rupee Cost Averaging.

SIP = small, regular investments made over a period of time + compounding advantage = wealth generation.

How Does SIP Work
SIP operations involve investing your funds in a mutual fund scheme you have decided on. Here's the step-by-step procedure:

  • You pick an amount to invest, for example, ₹500, ₹1000, or higher, each month.

  • You choose a mutual fund scheme suitable for your financial objective.

  • Each month, it is automatically withdrawn from your bank account.

  • The units of the mutual fund are bought according to the prevailing Net Asset Value (NAV).

  • Your investment increases over a period as you add more units, and your fund earns returns.

What is NAV in SIP?
NAV or Net Asset Value is the cost of one unit of a mutual fund. Your account is credited units by the fund house using the day's NAV while you invest through SIP.

  • With a low NAV, you receive more units.

  • When the NAV is high, you receive fewer units.

  • This averages your purchase price over a period of time.

Rupee Cost Averaging – SIP's Superpower
One of the key advantages of SIP is Rupee Cost Averaging.

As you are investing the same amount every time, you purchase more units when the price is low and less when it's high. This equalizes your purchase price and shields you from fluctuations in the market.

Assume you invest ₹1000 monthly.

  • In 1st month, NAV = ₹50 → Receive 20 units

  • In the 2nd month, NAV = ₹40 → You receive 25 units

  • For month 3, NAV = ₹33.33 → 30 units

Total invested = ₹3000
Total units = 75
Average price = ₹40

This approach is perfect for creating long-term wealth.

Advantages of SIP

  • Start Small: You can start investing from as little as ₹100 or ₹500 every month.

  • Disciplined Investing: SIP helps create a habit of saving and investing regularly.

  • No Market Timing Necessary: You never have to be concerned about timing your investments.

  • Compounding Power: The longer you are invested, the larger your wealth becomes.

  • Flexible and convenient: You can start, cease, or alter the amount at any time.

  • Goal-Based Planning: Ideal for long-term plans such as child’s education, retirement, or purchasing a house.

Types of SIP

  • Flexible SIP: Alter your monthly contribution according to your income/circumstances.

  • Top-Up SIP: Increase your SIP amount automatically over time.

  • Perpetual SIP: Open-ended - it continues until you actively cancel it.

  • Trigger SIP: Initiates automatically when specific market conditions are fulfilled.

How to Invest in SIP
Opening a SIP is easy and can be completed online within a few minutes:

  • Select one platform: Groww, Zerodha Coin, Paytm Money, INDmoney, or your bank.

  • Complete KYC: Aadhaar and PAN-based online verification

  • Choose your mutual fund: Utilize resources to review historical performance and risk level.

  • Set SIP amount and date: Choose how much to invest and when.

  • Start investing: Connect your bank and arrange for an auto-debit.

Top SIP Plans in India (As of 2025)
(Disclaimer: This is for information purposes only. Always conduct your research before you invest.)

  • Axis Bluechip Fund

  • Mirae Asset Large Cap Fund

  • Parag Parikh Flexi Cap Fund

  • SBI Small Cap Fund

  • UTI Nifty Index Fund

Common Mistakes to Avoid in SIP

  • Halting SIP during market declines.

  • Expecting quick outcomes within 1-2 years.

  • Failing to align SIP within your financial objectives.

  • Overlooking fund performance evaluations.

SIP is one of the best wealth-building techniques. It's suitable for first-timers, economical, and doesn't demand any stock-picking knowledge. If you're an individual planning for your future, constructing assets, or meeting financial objectives—SIP makes for an excellent starting point.

No, "It's less about timing the market, and more about time in the market."
Begin your SIP journey now and let compounding work its magic for you!

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