A Systematic Investment Plan, or SIP, is a method of investing a fixed amount into a mutual fund at regular intervals. SIP is not a separate investment product and it does not guarantee returns. The money is invested into the mutual fund scheme you choose, so the outcome depends on the scheme, market performance, costs and how long you remain invested.
How a SIP works
You choose a mutual fund scheme, an amount and a schedule such as monthly. On each scheduled date, the amount is invested at the applicable net asset value. When markets are lower the same contribution may buy more units, and when markets are higher it may buy fewer units.
Why investors use SIPs
SIPs can help turn investing into a regular habit and reduce the need to decide when to invest every month. They can also make it easier to match investing with a monthly budget. However, regular investing does not remove market risk.
What to compare before starting
- Your goal and expected investment horizon.
- The mutual fund category and its risk level.
- Expense ratio and any exit load.
- The fund portfolio and investment strategy.
- Tax treatment applicable to the scheme and your situation.
Choose an amount you can sustain
A SIP should fit after essential expenses, emergency savings and important insurance needs. Avoid committing an amount that may force you to stop investing or borrow for regular expenses.
SIP returns are not fixed
Mutual fund values can rise or fall. Historical performance is not a promise of future returns. Use calculators only for illustrations and review scheme documents and risk disclosures before investing.