SIP (Systematic Investment Plan)
Also known as: Systematic Investment Plan, monthly SIP
A Systematic Investment Plan (SIP) is a way of investing a fixed amount of money in a mutual fund at regular intervals — typically every month.
A SIP automates the act of investing. You commit to a fixed monthly amount (say ₹5,000), and on the same date each month that amount is auto-debited from your bank account and used to purchase units of a chosen mutual fund. There's no need to time the market — you simply keep investing on schedule.
The mechanism rests on two pillars: rupee-cost averaging and compounding. Because you invest a fixed amount regardless of price, you automatically buy more units when prices are low and fewer when they're high — averaging your cost per unit over time. And because returns are reinvested, even small monthly amounts compound into a meaningful corpus over 10–20 years.
SIPs are most commonly associated with equity mutual funds, but they can be used in debt funds, hybrid funds, and ELSS funds too. The return depends entirely on the underlying fund's performance — historically, diversified Indian equity funds have averaged 11–14% CAGR over long periods, but returns are not guaranteed and can be negative in any given year.
Unlike a Recurring Deposit (RD), a SIP carries market risk. Unlike a lump-sum investment, it spreads risk over time. For most salaried investors with a long horizon, a SIP is the simplest and most effective way to build wealth.