What is a SIP?
A Systematic Investment Plan (SIP) is an agreement to invest a fixed amount — say ₹5,000 — into a mutual fund every month on a set date. The investment is automatic: money is debited from your bank account and units of the chosen fund are purchased at that day’s NAV (Net Asset Value).
SIPs work for almost any budget. You can start with as little as ₹500 per month and increase your amount as your income grows (called a “step-up SIP”).
The key idea behind SIPs is that you don’t need to predict the market. You simply invest consistently and let two mechanisms work in your favour: rupee cost averaging and compound growth.
Rupee Cost Averaging: Your Built-in Hedge
When you invest a fixed rupee amount every month, the number of units you receive depends on the fund’s NAV that day.
| Month | NAV (₹) | Investment (₹) | Units Bought |
|---|---|---|---|
| Jan | 100 | 5,000 | 50.00 |
| Feb | 80 | 5,000 | 62.50 |
| Mar | 90 | 5,000 | 55.56 |
| Apr | 110 | 5,000 | 45.45 |
Total invested: ₹20,000 | Total units: 213.51 | Average cost per unit: ₹93.67 | Current NAV (Apr): ₹110
If you had invested ₹20,000 as a lump sum in January at ₹100/unit, you’d have 200 units. With SIP you have 213.51 units — a better outcome, because you bought more units during the February dip.
This automatic “buy more when cheaper, buy less when expensive” effect is called rupee cost averaging.
Compounding: The Engine of Long-Term Wealth
Returns earned in a mutual fund are reinvested — you earn returns on your returns. This is compound growth.
The longer you stay invested, the more powerful this becomes. Consider ₹5,000/month at 12% annual return:
| Tenure | Invested | Estimated Value |
|---|---|---|
| 5 years | ₹3,00,000 | ₹4,12,431 |
| 10 years | ₹6,00,000 | ₹11,61,695 |
| 15 years | ₹9,00,000 | ₹25,22,880 |
| 20 years | ₹12,00,000 | ₹49,95,740 |
At 20 years, you invested ₹12 lakh and got back nearly ₹50 lakh. That extra ₹38 lakh is pure compounding — your earlier returns earning their own returns.
The SIP Formula
Future Value (FV) = P × [(1 + r)ⁿ − 1] / r × (1 + r)
Monthly SIP amount
P
Monthly return rate = Annual rate ÷ 12 ÷ 100
r
Number of months
n
Worked Example
Monthly SIP: ₹5,000 | Annual return: 12% | Duration: 10 years (120 months)
- r = 12 / 12 / 100 = 0.01
- n = 120
FV = 5,000 × [(1.01)¹²⁰ − 1] / 0.01 × 1.01
FV = 5,000 × [3.3004 − 1] / 0.01 × 1.01
FV = 5,000 × 230.04 × 1.01
FV ≈ ₹11,61,695
How Much SIP Do You Need?
Work backwards from your goal. If you need ₹25 lakh in 15 years at 12% annual return, the required monthly SIP is approximately ₹4,950.
Use our SIP Calculator to try different combinations of amount, duration, and expected return — it shows the breakdown of invested amount vs. returns earned instantly.
SIP Tips
Start Early
Even ₹1,000/month from age 22 beats ₹5,000/month from age 32. Time in the market matters most.
Step Up Annually
Increase your SIP by 10% each year to match salary hikes. Dramatically higher corpus over 20 years.
Stay During Crashes
Market dips are a SIP investor's best friend — you buy more units cheaply. Stopping locks in losses.
Choose Funds Wisely
Look for consistent 5–10 year track records. Past returns don't guarantee future performance.