Are you a young professional thinking of starting to invest but worried about the large sum of money? You are not alone. Most people are challenged by that, but here’s the good part: you don’t need a large amount to start. Systematic Investment Plans (SIP) in mutual funds enable you to save consistently, but with smaller amounts, when compared to most alternatives. With this, you will be able to start building wealth over time.
In fact, in January 2025, SIP investment contributions reached an all-time high of ₹26400 crore, signaling the growing confidence in this investment method. More people are realizing how it can be a smart, simple way to grow their savings steadily. If you also want to invest without worrying about a large initial amount, you need to understand what is SIP. Keep reading to learn this in detail.
What Is SIP in Mutual Funds?
The SIP full form is Systematic Investment Plan, which offers an easy method for investing in mutual funds. Instead of putting in a large amount at once, you may invest small amounts at regular intervals. You can select a mutual fund, and the investment is made automatically at regular intervals.
This approach makes investing easier and helps grow your money steadily. It also reduce risk by spreading investments over different market conditions, which can lead to better returns in the long run.
How Does SIP Work in Mutual Funds?
Now, you know the SIP full form and what it is in mutual funds. Let us now discuss how systematic investment plan work in mutual funds:
- Rupee-Cost Averaging:
This allows you to purchase more units when prices are lower and fewer units when prices rise. Think of it as shopping during a sale. You will get more for the same price. With time, this approach helps reduce the overall cost of your investment.
- Power of Compounding:
Even small investments in mutual funds can grow big over time. Your investment generates returns, and those returns compound to earn additional gains. It works like a snowball rolling downhill. The sooner you begin, the larger it grows.
Understanding Systematic Investment Plan with a Simple Example
Let us say you plan to invest ₹1 lakh in a mutual fund. You have two options:
- Lump Sum Investment: Invest ₹1 lakh all at once.
- Systematic Investment Plan: Invest small amounts regularly instead of a single payment.
Assume that you choose SIP investment and decide to invest ₹500 per month. The number of units allotted to you depends on the Net Asset Value (NAV) of the mutual fund. NAV refers to the price of one unit of a mutual fund. It changes daily according to the market value of the fund’s assets. Below is a table showing how it works:
| Month | Investment(₹) | NAV(₹) | Units Allotted | Total Units |
| 0 | 500 | 100 | 5 | 5 |
| 1 | 500 | 125 | 4 | 5+4=9 |
| 2 | 500 | 100 | 5 | 9+5=14 |
| 3 | 500 | 200 | 2.5 | 14+2.5=16.5 |
Each month, ₹500 is automatically deducted from your account and invested in the mutual fund. Based on the NAV at that time, you will receive a different number of units. This process continues for the duration of your SIP, helping you invest gradually and benefit from market ups and downs.
Also Read: SIP vs Lump Sum: Which one is Better? | How to Set Up a Systematic Withdrawal Plan (SWP)
Key Features of Systematic Investment Plans in Simple Words
Systematic Investment Plans make investing easy and effective. Below are some key features that help investors of all kinds:
- Regular Investments
SIPs allow you to invest money at fixed intervals, such as monthly, quarterly, or yearly. This lets you grow your investments step by step.
- Flexible Investment Amount
You do not need to have a lump sum amount to begin your SIP investment. You can start at the lower limit with ₹500, which you can increase as per your budget.
- Better Growth Potential
Since SIPs invest in mutual funds linked to the stock market, they offer a chance for higher returns than traditional savings options like fixed deposits (FDs). As time passes, compounding works to increase your investment.
- Automatic Investment
The amount gets deducted directly from your bank account, so you don’t have to remember to invest each time.
- Different Fund Choices
SIPs offer options in equity, debt, and balanced funds. You can pick a fund that matches your financial goals and risk level.
How to Set Up an SIP in Mutual Funds
Starting an SIP in mutual funds is easy. Follow these simple steps to begin your investment journey:
- Choose a Mutual Fund
You might want to consider mutual funds that meet your financial objectives as well as your levels of risk tolerance.
- Set Up Instructions
Tell your bank to automatically transfer your chosen SIP amount on the dates you select. You can do this directly with the mutual fund company or through a broker.
- Decide on the Amount and Duration
Pick an amount you can invest regularly and decide how long you want to keep your SIP active.
Final Thoughts
Hope that you have got a clear idea of what is SIP in mutual funds. It allows you to set aside negligible amounts at very frequent intervals through SIP and have the benefit of rupee cost averaging along with compounding. So you can increase your returns over a long time. Partner with a reliable mutual fund provider who can guide you in your investment journey to reach your financial goals. Start your Systematic Investment Plan today and take action toward achieving financial freedom!
Also Read: How to Analyse a Mutual Fund Before Investing | What Is an Exit Load in Mutual Funds?
FAQs
1. Can I increase my SIP amount over time?
Yes, many mutual funds provide the option to increase your amount. You can do this through a step-up or top-up feature.
2. Can I have multiple SIPs in different mutual funds?
Certainly, multiple SIPs can be set up across various mutual funds. This strategy helps you diversify your portfolio and reduce risk by investing in different asset classes and strategies.
3. Is it possible to pause or stop my SIP investment?
Yes, you can pause or stop your investment whenever needed. Most mutual fund providers offer this option through their online portal or by contacting their customer support team.
4. How frequently can I invest?
Most mutual fund schemes allow you to invest in SIP monthly. Additionally, some schemes offer quarterly or bi-annual options.
5. What happens to my SIP after it matures?
When your SIP matures, the invested fund could be redeemed back. Depending on your financial objectives, you can choose to reinvest or withdraw them.
Hello there, my name is Phulutu, and I am the Head Content Developer at Nivesh Karlo. I have 13 years of experience working in fintech companies. I have worked as a freelance writer at Policybazaar, Paytm Money, Investopedia, and others. I love writing about personal finance, investments, mutual funds, and stocks. All the articles I write are based on thorough research and analysis. However, it is highly recommended to note that neither Nivesh Karlo nor I recommend any investment without proper research and read all the documents carefully.
