Systematic Investment Plan and its Benefits

SIP or Systematic Investment Plan is one of the methods of investing in mutual funds. This is where regular investment with a fixed and small sum of money is made in a disciplined manner.

Systematic Investment Plan (SIP) helps you invest a fixed sum of money regularly in mutual fund schemes. Using SIP one can invest small amount periodically (for example, weekly, monthly, quarterly). SIP offers disciplined and passive approach to investing to create wealth in the long term.


How SIP Works?

The systematic investment plan has three stages:

SIP Mandate:

In the first stage, Investors need to give a mandate (authorization) to invest in mutual fund schemes.

Auto Debit / ECS:

After first stage, after you give a mandate; fund house auto-debits your bank account for the SIP amount through standing instruction.

Allotment of Mutual Fund Units:

Once first two stages are set, the SIP amount debited from your bank account is utilized for purchasing mutual fund units which are allotted to you.


Features of Systematic Investment Plan (SIP)

Small Investment Amount:

SIP helps you start a mutual fund investment with a smaller amount. You can start SIP for an amount as small as Rupees 100.

Regular Investment Intervals:

Systematic Investment Plan allows investment at regular intervals which can be weekly, monthly or quarterly.

No Cap on Maximum Amount of SIP:

The minimum amount of SIP investment is Rupees 100. On the other hand, there is no restriction for the maximum amount for SIP investment.

Option to Pause Investment:

You can Pause SIP investment for a temporary period which is useful in financial crisis situation. However, it cannot be paused for very long time.

Cancel SIP:

Systematic Investment Plan (SIP) investment comes with the option to cancel.


Benefits of SIP Investment

Brings Financial Discipline:

With SIP you have to invest a sum of money at regular intervals. SIP instils discipline as it is the route which helps you invest a particular amount on a regular basis. Being disciplined helps you make logical decisions and make prudent investments.

Simple and Convenient:

You can start small and there is no need to have a lot of money to start a SIP. Systematic Investment Plan brings convenience while investing; you can choose any amount depending on your cash flows. Additionally, the SIP investment process is automated.

Investing across market cycles:

When the markets are low the same SIP amount can purchase a higher number of units. In higher market cycles you get lower units. SIP allows the cost to be spread over a period and you get an average purchase price for the units. So, With SIP, you don’t need to worry about timing the markets. Just stay invested irrespective of the market conditions.

Phased Investment:

Using SIP you are purchasing a smaller number of mutual fund units every month, helping you to invest in a phased manner over a period of time.

SIP Frequency:

The frequency of SIP investment is usually weekly, monthly or quarterly. Systematic Investment Plan frequency selection depends entirely on you.

Enjoy the power of compounding:

With SIP, you can stay invested for a longer period of time. Over time as your investment generates returns, the returns get added to the principal amount and this in turn generates more returns.


Illustration with Example

Monthly Investment: ₹ 5000
Investment Tenure: 15 Years
Total Amount Invested: ₹ 900000
Expected Annual Returns (%):10%
Expected Total Amount: ₹ 2100000


Monthly SIP Amount (₹)

Expected Final Amount (₹) @ Annual Return of 10%

10 years


10 Lakhs

15 years


21 Lakhs

20 years


38 Lakhs

25 years


67 Lakhs

30 years


1.1 Crores


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