What is SIP Investment, Its Benefits & Features?

Know how Systematic Investment Plans work before investing

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A systematic investment plan, also known as SIP, allows investors to invest in mutual funds responsibly. SIP deducts a pre-determined amount periodically from the investor's bank account, which gets invested in a mutual fund of their choice. Before we discuss SIP benefits, let’s first understand how systematic investment plans work. 

What Is SIP

SIP is a style of investing in mutual funds. It allows an investor to invest in a mutual fund scheme in a financially responsible way. SIPs allow investors to make relatively small individual investments starting from Rs. 500 per month in mutual fund schemes over a long period of time to create a large investment corpus over time.  

SIP investments have become popular in recent times as it allows Mutual Fund investors make disciplined investments without having to worry about prevailing market conditions. Due to the reduced impact of market volatility and market timing, investing via SIP has made it easier for everyone to start investing in Mutual Funds. 

How Does SIP Work?

To better understand the various SIP benefits you need to know how a SIP works. When investing in a mutual fund scheme through SIPs, an investor makes a decision to invest a specific amount of money at pre-determined intervals such as monthly, quarterly, weekly, daily, etc.

This amount gets automatically deducted from the investor’s bank account via standing instruction submitted with the bank. Once the amount has been deducted, it is invested in the Mutual Fund chosen by the investor and scheme units get allocated to the investor based on the day-end Net Asset Value (NAV) of the mutual fund.  

What Some Key SIP Benefits? 

There are many reasons for the growing popularity of SIP. Let’s take a look at some key SIP benefits that investors can get:

● Rupee Cost Averaging: This is perhaps the most important benefit that SIP offers to investors. As the investment amount is fixed, when markets are high, fewer units of the Mutual Fund are purchased, while more units are purchased when markets correct. This averages out the cost of purchasing Mutual Fund units which is known as rupee cost averaging.

Due to this SIP benefit, investors get minimally impacted by market conditions if they continue investing over the long term.  

● Better Investment Disciplined: Another advantage of SIP is that it makes investing in mutual funds more disciplined and organized. While on the one hand, the investor keeps adding investments periodically, SIP also ensures that the investor’s finances are not strained when making the investment.

● Small Individual Investments: One of the key SIP benefits is that you can start with amounts as small as Rs. 500 per month. This makes SIP investments affordable for even the smallest investor.

● Convenience: Being an automated process facilitated by standing auto-debit instructions provided to the bank makes SIP a convenient way to invest. Furthermore, the automated process ensures that you never miss a single chance to add to your investments.  

● Flexibility: Another important SIP benefit to consider is its flexibility. Investors can pause or cancel existing SIP or a start a new SIP with minimal restrictions. This flexibility ensures that mutual fund investments can be increased, decreased or even stopped by the investor based on his or her financial situation.

● Power of Compounding: This is one of the SIP benefits that results from staying invested for the long term. Using the SIP route, you can start investing earlier in life with smaller amounts and stay invested longer. This ensures that the returns from these small investments get more time to grow through the power of compounding so that you can create a large investment corpus with relative ease.  

Factors to Consider While Investing in SIP

While SIP benefits are many, you do have to consider certain factors before you start making mutual fund investment via a systematic investment plan:

Determine Your Risk Appetite

Before investing in mutual funds, it is mandatory for an investor to determine their risk-taking ability. For investors who have moderate risk tolerance, investing in a hybrid fund or a diversified large-cap equity fund might be a better option that investing in a small cap or midcap fund via SIP. 

Identify Goal and Duration

You must identify your investment objective accurately for starting a SIP. To reap SIP benefits to the maximum, make sure you have identified your investment goal beforehand. This will make it easy for you to decide the type of scheme, term, frequency, and amount of SIP that will suffice to achieve your investment goal.

Performance of Scheme

Investors must assess the performance of the scheme versus its benchmark and peers over different time periods like 3 years, five years, ten years and since scheme inception. This comparison of can help investors select mutual funds that are consistent performers over the long term. 


Q. How is SIP beneficial to investors?

An SIP is beneficial to investors because it provides flexibility, long-term gains, regular saving, convenience with minimum investment as low as just Rs.500 per month.

Q. Is SIP safe?

SIP returns depend on performance of the mutual fund that has been chosen. So, returns are not guaranteed unlike guaranteed return investments like FD or RD.

Q Can I lose money in SIP? 

Yes, money is at risk in any type of market-linked investment. So, if your chosen mutual fund performs poorly, you can lose money when investing via SIP.  

Q. Can a lumpsum investment be made along with SIP in the same fund? 

Yes. An investor can continue making SIP and lump sum investments in the same mutual fund simultaneously.

Q. When is the right time to start an SIP?

The earlier in life you start an SIP, the longer you will be able to stay invested. Staying invested longer can help you get greater benefit from the power of compounding. So don’t delay in starting your SIP investment.   


ARN No: May22/Bg/27

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