What Is a SIP (Systematic Investment Plan) & How It Works
What Is a SIP (Systematic Investment Plan) & How It Works
A Systematic Investment Plan allows investors to invest a fixed amount regularly in mutual funds to build wealth over time1. In May 2025, SIP inflows reached a record high of INR 26,688 crore. As retail participation in the Indian investment landscape in India rises, aided by SIP investment mechanisms, not having “enough savings” can no longer be your excuse to not invest.
Read along as we decode everything an investor must know about SIP mutual funds to understand the essence of what is SIP investment.
What is SIP Investment?
The SIP (Systematic Investment Plan) is a planned investment approach in which you regularly invest a fixed, predetermined amount. In other words, SIPs allow you to invest small sums periodically to create a significant investment corpus over time due to the power of discipline and compounding. While SIPs have become popular in mutual funds, the systematic approach can be of great advantage across investment options.
For example, suppose Mr A invests INR 10,000 per month in an SIP mutual fund. Assuming a return of 12%, after 20 years, he can accumulate a corpus of INR 99,91,479.
Now, let us explore the SIP meaning in mutual funds by exploring how an SIP works.
SIP Mutual Fund: How Does SIP Work?
A systematic investment plan automatically deducts a fixed amount from your linked bank account on a set date periodically. SIP mutual fund, as the name suggests, invests in a mutual fund scheme.
Let us understand this with an example:
- Ascertaining the monthly contribution: You decide to invest INR 5,000 every month through SIP
- Choosing the mutual fund investment category: You choose an equity or debt mutual fund for your investment
- Date of payment: You select the 15th of every month as your SIP date
Now, INR 5,000 will automatically get deducted from your linked bank account on the 15th of every month. This INR 5,000 will purchase units of your selected mutual fund.
As you continue your SIP mutual fund investment month after month, you will accumulate more and more units of the mutual fund. The market value of these units is expected to grow as the fund's Net Asset Value (NAV) rises over time. Even a small systematic investment plan can grow into a large corpus in the long run. Let us take an example to understand this better.
Suppose Mrs K decided to invest INR 1,000 per month in an SIP. In the first month, the market price (NAV) of 1 unit was INR 50. Therefore, she could get 20 units with her INR 1,000 investment. In the second month, the NAV increased to INR 55. So, she bought 18.18 units. However, note that the market price of her initial 20 units (bought at INR 50) appreciated. Therefore, her total investment at the end of 2 months is INR 2,100 (INR 1,000 + INR 1,000 + INR 5x20), and not INR 2,000 (INR 1,000 + INR 1,000)
Month | Invested amount (fixed amount each month) In INR | NAV of the fund (fluctuating) In INR | No. of units allotted = (Invested amount/ NAV) | Cumulative units allotted | Total Investment value = (Cumulative unitsxCurrent NAV) In INR |
1 | 1000 | 50 | 20 | 20 | 1000 |
2 | 1000 | 55 | 18.18 | 38.18 | 2100 |
3 | 1000 | 52 | 19.23 | 57.41 | 2985 |
4 | 1000 | 48 | 20.83 | 78.24 | 3756 |
5 | 1000 | 45 | 22.22 | 100.46 | 4521 |
SIP instils financial discipline as you save and invest periodically. It is a disciplined saving method that helps you build wealth over time.
However, a question arises. If an investor can make a lump-sum payout, should he still choose SIP?
SIP Vs. Lumpsum: Explore What Works Best
Let us explore the suitability of SIP mutual fund investment and FD with an example.
Suppose Mr A invested INR 10,000 per month for 10 years. His friend Mr. P invested the same corpus, but in a lump sum. All other parameters remaining the same, the table below studies any difference between the two scenarios.
| Particulars | Mr A SIP (INR) | Mr P Lump Sum (INR) |
| Total Investment | 12,00,000 | 12,00,000 |
| Return (interest only) | 10,40,359 | 25,27,018 |
| Total Corpus | 22,40,359 | 37,27,018 |
While a lump sum investment in a mutual fund can offer a greater return. However, there are two key cautionary remarks essential for every investor.
- Markets are susceptible to volatility. Therefore, while SIP investors can be dynamic with their investment, a lump sum investment requires high risk tolerance.
- SIP mutual funds aim at building a financial discipline, encouraging individuals with limited funds to invest.
When To Invest In a Systematic Investment Plan?
Here are some prime conditions to start SIP investing:
- Unavailability Of A Large Lumpsum: SIP is the easiest route if you have little capital but want to start investing. SIP allows you to begin with minimal capital (INR 500) and invest small amounts periodically1.
- First-Time Investor: SIP is ideal for new investors unfamiliar with market timing and valuations. It prevents investing a large lump sum at the wrong time in one go.
- Risk-Averse Investor: SIP in debt funds suits conservative investors who want stable returns without too much volatility risk exposure.
- Long Investment Tenure: To benefit from compounding, you need at least 5-10 years of tenure. The more extended your investment horizon, the better for SIP.
- Building An Emergency Fund: SIP is a disciplined way to create a phased emergency fund during your initial earning years.
Types Of SIP
Various types of SIPs available to investors are:
- Regular SIP: It implies investing a fixed amount at regular intervals. Investors cannot change investment amounts during the tenure.
- Top-up SIP: It allows for a periodically increasing SIP amount. It helps invest higher sums as income rises.
- Flexible SIP: With flexible SIPs, investors can alter investment amounts or pause the SIP based on their research or professional advice.
- Perpetual SIP: The SIP continues till the investor instructs to stop without any predetermined maturity.
- Trigger SIP: It starts, stops, or switches investments when a pre-set event occurs, like a NAV change.
- SIP With Insurance: Some asset management companies (AMCs) offer insurance coverage for investors who invest through SIPs.
- Multi-SIP: This allows you to invest in multiple schemes of a fund house through a single instrument and is a great way to effortlessly build a diversified portfolio.
Benefits Of Investing With SIP
- Compounding: SIP over long tenure leverages compounding to grow wealth significantly.
Read more on The Benefits Of Compounding Through SIPs
- Cost Averaging: SIP fixes average unit cost by investing a fixed amount regularly at different levels and hence averages out the purchase price. As the market rises or falls, an SIP strategy will balance out the highs and lows and reduce your dependence on the market.
- Enforces Discipline: Automatic investments enforce financial discipline to achieve goals.
- Flexibility: Investors can pause, increase, or decrease their SIP anytime, according to changing economic and financial conditions.
- Accessibility: A low minimum investment amount and convenient online process make it accessible for most investors.
- Diversification: Investors can invest across equity, debt, etc., to balance out risks.
SIP Tax Benefits
The table below explores the key SIP tax benefits.
| Particulars | Description |
| Eligible SIPs | ELSS |
| Deduction | SIP investment in ELSS schemes is deductible under Section 80C |
| Deduction Limit | Up to INR 1.5 lakh per financial year |
| Lock-in Period | 3 Years |
| Tax on Gains (Equity Funds) | LTCG above INR 1.25 lakhs is taxed at 12.5% for equity funds, and STCG is taxed at 20% |
However, like every investment medium has a degree of risk associated with it, SIP investments in mutual funds also carry a degree of risk.
Risks Associated with SIP Investments
Understanding the risks associated with different SIPs can not only aid in answering questions like what is SIP Investment and how does SIP work, but also act as a cautionary signal to them. Discussed below are some key risks associated with mutual fund investments through SIPs.
- Market Volatility: Mutual fund SIP investments are prone to market swings. Even while rupee cost averaging helps SIPs to reduce market timing risk, investments may nevertheless lose value during market downturns.
- Liquidity Concerns: ELSS and other tax-saving SIPs have a lock-in term. Other funds could restrict liquidity and access to money when required because of exit loads for early withdrawals.
- Expenses and fees: Mutual funds change portfolio management fees and other such expenses, which reduce the gains available for investors. While choosing a fund, mutual fund investors should compare the expense ratio and other such metrics of key funds.
- Inflation: Like in the case of any investment medium, inflation diminishes the effective rate of return. For instance, if a mutual fund offers 6% returns and the rate of inflation in the country is 4%, the effective return rate is 2%.
This leads us to our next question. What investment classes can serve as an alternative to mutual funds?
Is SIP Better Than Fixed Deposits?
Investors can weigh the benefits of SIPs and fixed deposits based on risk tolerance, return expectations, investment size, and time horizon.
SIP entails regular investments of equal amounts in mutual funds, while fixed deposits provide a lump sum investment with assured returns. Fixed deposits are favoured by conservative investors, prioritising capital preservation without risk. On the other hand, SIPs in mutual funds are suitable for those seeking potentially higher returns with moderate to high risks.
Fixed deposits offer predetermined fixed returns for a specified period, whereas SIPs offer flexibility for goal-oriented investments, potentially yielding higher returns and allowing redemption at any time.
However, fixed deposits are not the only ones. Let us compare mutual funds with fixed deposits and PPF.
| Parameters | Mutual Funds | Public Provident Fund | Fixed Deposits |
| Meaning | Pools investor funds to invest in a range of assets depending on the category. | Long-term, government-backed savings scheme targeted towards retirement fund creation. | Bank deposits made for a fixed tenure, earning a fixed rate of return. |
| Nature | It is a market-linked security | Offers fixed returns offered by the government | Provides a guaranteed return |
| Return | Varries. For instance, large-cap equity funds have given a category average return of 14.28% | Return from 1 April 2020 to 30 September 2025 was 7.1. The rate is determined and announced by the Government. | Varies from one bank to another. High-yield FDs on Grip can offer a return of up to 8% to 10% |
| Tax benefits | Applicable only on ELSS | Enjoy tax benefits | Applicable only on tax-saving FDs |
Are There Any Safer Alternatives To SIP In Mutual Funds?
While SIPs in mutual funds are safer than equity investing, they are not completely risk-free due to their market-linked nature. Alternatively, you can start your SIP journey in corporate bonds that offer high-yielding, predictable fixed returns.
Grip Invest offers two SIP options- Short Term Bond SIP and Medium Term Bond SIP with the following characteristics:
- Short Term Bond SIP:
- Min Investment: INR 10,000
- Bond Tenure <18 months
- Yield- 9-10.5% p.a.
- Rating: A- and above
- Medium Term Bond SIP:
- Min Investment: INR 10,000
- Bond Tenure: 18-36 months
- Yield: 10-11.5% p.a.
- Rating: A- and above
To enable diversification, the underlying bond changes monthly within the tenure and yield parameters.
Starting a SIP with Grip Invest takes just five easy steps:
- Select SIP type, amount, and date
- Get the payment link on the chosen date
- Make a one-click payment
- Bonds get added to your portfolio
- Repeat next month
Grip Invest makes starting your SIP investment quick, convenient, and structured. Explore the fixed-income investment journey now through SIP.
How To Start SIP in India
Investing in mutual funds through Grip is simple. Follow the steps below to make your SIP journey successful.
Step 1: Visit Grip Invest.
Step 2: Complete your KYC.
Step 3: Select Invest from the bar above and navigate to mutual funds.
Step 5: A range of mutual funds is listed. Compare and choose the one that suits your fiscal goal and investment philosophy.
Grip can offer up to 14% post-tax return through a range of different assets.
Visit Grip Today!
Frequently Asked Questions On What Is SIP Investment
1. How can I make an online SIP investment?
You can invest online via the mutual fund website by registering your account, adding bank details, selecting fund & SIP details, and authorising auto-debit.
2. What is NAV in SIP?
NAV or Net Asset Value refers to the market value per unit of the mutual fund scheme you invest via SIP. NAV keeps changing based on the market value of investments held under the fund.
3. Can I withdraw a SIP anytime?
Yes, you can pause, discontinue, or withdraw your SIP investment anytime you want unless it has a lock-in clause. You also have redemption flexibility for the units bought via SIP.
4. Is your money safe in SIP?
While SIPs are not completely riskless since market fluctuations influence their returns, they are perceived as relatively safer. This is attributed to their rupee cost-averaging strategy, their capacity to endure market volatility over an extended period, and SEBI's regulatory controls.
References:
1. The Economic Times, accessed from: https://economictimes.indiatimes.com/mf/analysis/mutual-fund-sip-inflows-at-record-high-rise-marginally-to-rs-26688-crore/articleshow/121746473.cms?from=mdr
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This communication is prepared by Grip Broking Private Limited (bearing SEBI Registration No. INZ000312836 and NSE ID 90319) and/or its affiliate/ group company(ies) (together referred to as “Grip”) and the contents of this disclaimer are applicable to this document and any and all written or oral communication(s) made by Grip or its directors, employees, associates, representatives and agents. This communication does not constitute advice relating to investing or otherwise dealing in securities and is not an offer or solicitation for the purchase or sale of any securities. Grip does not guarantee or assure any return on investments and accepts no liability for consequences of any actions taken based on the information provided. For more details, please visit www.gripinvest.in
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