What is Systematic Investment Plan (SIP)? How Can It Help You?

An investor education & awareness initiative.

A Systematic Investment Plan (SIP) is a highly popular facility offered by mutual funds where you can automatically invest a fixed sum of money in a mutual fund at pre-specified intervals of time (weekly, monthly, etc.) by giving a one-time instruction. Similar to a Recurring Deposit (RDs) for mutual funds, SIPs help you invest regularly and with discipline; they also take away the hassle of having to manually make multiple investments as the whole process is automated.

Here are some key benefits available when you invest using the SIP facility:

  • You can start small: SIPs allow you to make small savings. You can start a SIP with low amounts such as Rs 500 or Rs 1,000 per month and increase this amount as time goes by. Even if you have never invested money regularly before, you can try a SIP and experience the joy of building wealth over time, step by step.

  • Helps you remain disciplined: SIPs have instilled the sense of discipline in many investors. If you use the ‘direct debit’ facility where each SIP installment is deducted from your bank account at your selected time interval and you will be saving time and investing regularly without any additional effort. No new paperwork or writing cheques.

  • Flexible: SIPs are really flexible with respect to how long, how much, and how frequently you want to invest. You can invest for just a year, 5 years, 7 years or 3 months. Since there is no fixed investment tenure you can invest for whatever period you want. In fact, the longer you invest the greater the chances of earning higher returns. You can choose the amount you want to invest, you can also choose how frequently to invest it (daily/ monthly/ quarterly etc). You can also save money automatically by giving standing instructions to your bank; the investment will be made automatically without you needing to put any extra effort or signing more forms or writing new cheques. All you have to do is to ensure that your bank account has sufficient funds to meet the SIP amount each month. This gives SIPs the great benefit of flexibility and total convenience.

  • Your income earns a second income for you: SIPs allow you to gain from the incredible power of compounding. Compounding means ‘earning income on income’. Every investment you make generates some return for you, which in turn will generate more interest and so on. By starting early and staying invested for the long term (not withdrawing it), you will continue to earn higher income and over a period of time, be able to build massive wealth.

  • No need to time the market: SIPs have another wonderful feature in built within them called Rupee Cost Averaging. Since you invest the same amount at regular intervals, when the markets rise higher, you will get fewer units and when they fall lower, you will buy more units. Over long periods of time, the average cost of your investment per unit will be lower than the average market price. You don’t need to worry about when to enter or exit the markets, especially during volatile times when markets are regularly fluctuating.

Let us understand how SIPs can help you accumulate wealth with an example. Let us say you want to save Rs 50 lakh for your daughter’s education, after 15 years and you are willing to take some risk to do the same. Your mutual funds advisor may tell you that over the past 15 years, the S&P BSE Sensex gave an annual average return of 12%, and assuming that this will continue, he could suggest that you invest Rs 8500 every month for the next 15 years in the equity market, via an appropriate mutual fund.

Let us look at the table below:

Your SIP investment for your daughter’s higher education
Monthly investment Assumed Return Saving Period Annual Investment Total Sum Invested Total Profits Value at Maturity
Rs 8,500 12% p.a.^ 15 years  Rs. 1,02,000 Rs 15,30,000 Rs 27,16,432 Rs 42,46,432
*^The BSE Sensex has given an annual average return of about 12% over the past 15-year period, hence an assumed return of 12% seems appropriate here*.

As we can see from the above table, your overall investment of Rs 15 lakh (spread over the 15 years) will more than double over the 15 year period, thereby helping you achieve your target amount to successfully meet your daughter’s education expenses.

Just like you planned for your daughter’s education using SIPs, you can do a similar exercise for your other financial goals so that you fulfil them successfully.

Do you know about the 15-15-15 rule?

An interesting way to understand the power of systematic investing is to remember the 15-15-15 rule. A monthly SIP of Rs 15,000 over 15 years, earning year on year return of 15% will end up earning you over Rs 1 CRORE!! Incredible how even small investments can earn you great wealth over the long term, isn’t it?

To conclude, SIPs are a simple way to invest in the stock markets with lower risk (in case you don’t want to invest all your money in the market at once) and maximum convenience. SIPs bring consistency, discipline, ease and benefits of rupee cost averaging to investments. If you are not a regular saver or if you would like to take a more disciplined approach to saving, you should consider SIPs to help you build your wealth.

Speak to your investment advisor to know more on systematic investment planning.

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Key Takaways

  1. SIPs are an easy way to begin saving and investing.

  2. SIPs help inculcate the discipline of investing regularly.

  3. SIPs help you automate investing in a flexible and convenient way.

  4. SIPs allow small investments to turn into a large pot of wealth.

  5. SIPs help you generate income on income by reinvesting profits.

  6. SIPs eliminate the need to time the markets.

  7. SIPs offer the benefit of rupee cost averaging.

Disclaimer: All Mutual Fund investors have to go through a one-time KYC (Know Your Customer) process. Investors should deal only with Registered Mutual Funds (‘RMF’). For more info on KYC, RMF & procedure to lodge/redress complaints, visit This is an investor education & awareness initiative by DSP Mutual Fund.