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SIP

Investment

Systematic Investment Plan

A method of investing a fixed amount regularly in a mutual fund, allowing you to accumulate wealth gradually through the power of compounding.

Definition

A Systematic Investment Plan (SIP) is a disciplined method of investing in mutual funds where you invest a fixed amount at regular intervals — typically monthly — rather than as a lump sum. SIPs are offered by all SEBI-registered mutual funds in India.

The key advantage of SIP is rupee cost averaging: because you invest the same amount regardless of the NAV, you automatically buy more units when markets are low and fewer when markets are high. Over a long investment horizon, this reduces the average cost per unit and smooths out market volatility.

SIPs are not limited to equity funds. You can run SIPs in debt funds, hybrid funds, index funds, ELSS funds, and international funds.

Formula

The future value of SIP investments is calculated using the annuity formula:

FV = P × [(1+r)^n − 1] / r × (1+r)

Where:

  • FV = Maturity amount
  • P = Monthly SIP amount
  • r = Monthly rate of return = Annual expected rate ÷ 12 ÷ 100
  • n = Number of instalments (months)

For actual returns on a running SIP, use XIRR since contributions happen at different NAVs across different dates.

Worked Example

You invest ₹10,000 per month via SIP for 15 years (180 months) in an equity mutual fund. You expect an average annual return of 12%.

  • P = ₹10,000
  • r = 12 ÷ 12 ÷ 100 = 0.01
  • n = 180

FV = 10,000 × [(1.01)^180 − 1] / 0.01 × 1.01 ≈ ₹50.46 lakhs

Your total investment is ₹18 lakhs; the corpus grows to about ₹50 lakhs — with ₹32 lakhs coming from compounded returns. Try the SIP calculator to model your own scenario.

Key Things to Know

  • Start early: The earlier you start, the more compounding works in your favour. A 25-year-old investing ₹5,000/month for 35 years accumulates far more than a 35-year-old investing ₹10,000/month for 25 years.
  • ELSS via SIP: ELSS funds can be invested via SIP and provide a Section 80C deduction on each instalment, subject to the annual cap of ₹1.5 lakh.
  • NAV allotment: SIP amounts are invested at the NAV of the date the payment clears, not the date you initiate the transaction.
  • Step-up SIP: Many platforms allow you to increase your SIP amount annually (typically by 10–15%) to match salary growth — this significantly boosts the final corpus.
  • Direct vs regular: Investing via direct plans (without a distributor) saves on expense ratios, increasing net returns over time.

Related Calculators

SIP Calculator →Calculate your SIP returns instantly. Enter monthly investment, expected annual return, and time period to see total corpus, invested amount, and estimated gains.
Lumpsum Calculator →Calculate returns on a one-time lump sum investment instantly. Enter your investment amount, expected return, and duration to see total corpus and gains.
SIP vs Lumpsum Calculator →Compare SIP and lumpsum returns on the same total investment. See which strategy grows your money more over any time period at the same expected annual return rate.
SIP vs RD Calculator →Compare SIP and Recurring Deposit returns on the same monthly investment. See how much more a market-linked SIP earns over a fixed-rate RD for any tenure.

Related Terms

CAGRCompound Annual Growth RateXIRRExtended Internal Rate of ReturnNAVNet Asset ValueELSSEquity Linked Savings Scheme
Frequently Asked Questions
What is the minimum SIP amount?
Most mutual funds allow SIPs starting from as low as ₹100 or ₹500 per month. Specific minimums vary by fund house and scheme. Index fund SIPs on many platforms can be started with ₹100.
Can I stop or pause a SIP?
Yes. Most fund houses allow you to pause a SIP for 1–3 months or stop it entirely at any time without penalty. You do not lose your accumulated units when you stop — they remain invested.
How is SIP return measured?
SIP returns are measured using XIRR (Extended Internal Rate of Return) because contributions are made at irregular intervals at different NAVs. The XIRR gives the annualised equivalent return on all cash flows.
Is SIP safe?
SIP is a method of investing, not an investment product itself. The safety depends on the underlying fund — equity fund SIPs carry market risk, while debt fund SIPs carry lower risk. SIPs do not guarantee returns.
What is rupee cost averaging in SIP?
Rupee cost averaging means you buy more units when the NAV is low and fewer when the NAV is high, since you invest a fixed amount each time. Over time this averages out your cost of purchase, smoothing out market volatility.