SIPs and their benefits explained
What is a systematic investment plan?
A systematic investment plan, called SIP for short, is one of the first terms you will hear when talking about mutual funds. So what exactly is an SIP, and why is it so popular?
Investments into mutual funds can be made in two ways - SIPs and lumpsum investments. SIPs have many advantages over lumpsum investments, making them the preferred mode of investing for many investors.
In a lumpsum investment, the investor places manual orders to purchase units of a mutual fund whenever the investor wishes to invest. However, in an SIP, a fixed amount is automatically invested into mutual funds on a specific date every month.
What are the benefits of SIPs?
For mutual fund investors, SIPs have the following benefits :
Disciplined Investing
When you take a loan, the EMI amount is automatically debited from your bank account every month. Why not do the same for your long-term investments?
SIPs ensure that you stick to your investment plan, and invest in a disciplined manner. Mentally, you will be prepared that a fixed amount will be invested, no matter what. This also ensures that you control your expenses and invest every month. With lumpsum investments, there is a high likelihood that you will skip investing in some months (when you spend extra) and this will mess up your investment plan.
Rupee Cost Averaging
Equity markets are volatile. Buying low and selling high is the way to earn profits. However, it is nearly impossible to predict the bottom or top of stock markets in the short-term or medium-term. However, there is a very strong likelihood of long-term growth in equity markets.
Since timing the markets is beyond our control, we systematically invest every month with a long-term perspective. The market conditions are irrelevant - we invest whether the market is scaling new highs, or plunging to lows. This ensures "rupee cost averaging", and your cost of investment is averaged out over time.
Since we are investing with a long-term perspective, and equity markets are likely to perform well over the long-term, rupee cost averaging removes timing from the equation, and achieves the objective of "buy low and sell high" over time.
Below is the chart of Nifty 50 from 2002 to 2022 (last 20 years). We can see that there is short-term and medium-term volatility, but there is long-term growth. The approximate average cost of investment for an investor who invested an equal amount every month is shown by the red arrow. This is the essence of rupee-cost averaging.

Multiple Funds
The investor can choose multiple funds in which to invest. As explained in this post, there are several categories of mutual funds with different investment objectives and styles. An SIP can be done with one or multiple funds to suit the investor's investment goals and financial plan.
Flexible
SIPs are highly flexible. There is no obligation to continue investing for a minimum period. SIPs can be paused, increased or decreased as per the investor's convenience.
Low Minimum Investment
It is a myth that mutual fund investments are only for the rich. Mutual funds are highly accessible, and you can start an SIP with as low as ₹500!
How can you start an SIP?
You can invest in mutual funds by opening an investment account with us. We provide advisory and help you select the best mutual funds for your goals. The instant e-KYC process is easy and you can get started with your mutual fund investments immediately!
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