What Is a SIP in Mutual Funds? A Beginner’s Guide

A SIP is a way of investing rather than a product of its own. The risk and return depend on the mutual fund you choose. Think of it as a recurring payment to your future self.

How does a SIP work?

On your chosen date, the amount is debited from your bank and used to buy units of your fund at that day’s net asset value (NAV). More units are bought when the NAV is low, and fewer when it is high.

Here you invest ₹20,000 and buy 525 units, for an average cost of about ₹38 per unit, even though the average NAV was ₹41.25. This effect is called rupee cost averaging. It reduces the risk of poor timing, but does not prevent losses.

What are the benefits of a SIP?

• Discipline: investing happens by default, without a decision each month.
• Low starting amount: many funds start at ₹100 to ₹500 a month.
• Compounding: returns earn further returns over time. See how this works.
• Flexibility: you can raise, pause or stop it whenever you need to.

What are the risks of a SIP?

A SIP in an equity fund can show losses, sometimes for years. It suits long-term goals, and works only if you keep going through the falls. Most of its benefit comes from buying during them. Debt funds also carry interest rate and credit risk.

What should I do next?

See what your monthly amount could become with the SIP Calculator, then follow our step-by-step guide to starting a SIP.