A Systematic Investment Plan, or SIP, is a way to invest an amount periodically into a mutual fund scheme. It describes the contribution schedule, not a separate product or a guaranteed-return plan. What your money is invested in depends on the scheme you select.
How does an SIP work?
You choose an eligible scheme, an instalment amount and an available frequency. After the required registration and payment arrangements, each successful instalment buys units at the applicable NAV under the scheme's transaction rules. The units accumulate in your folio.
The minimum amount, available dates and change or cancellation process depend on the scheme and platform. Check those terms before registering rather than assuming every SIP works identically.
A simple rupee cost averaging example
Suppose ₹1,000 is invested on each of three purchase dates. At an illustrative NAV of ₹20, the first purchase buys 50 units. At ₹25, the second buys 40. At ₹10, the third buys 100. You have invested ₹3,000 for 190 units, giving an average purchase cost of approximately ₹15.79 per unit.
If the NAV is still ₹10 after the third purchase, those units are worth ₹1,900. This simplified example ignores transaction deductions and shows why averaging the purchase cost does not prevent a loss. Actual allotment and NAV applicability follow the scheme's rules.
What does compounding mean here?
Compounding describes returns building on accumulated value over time. Mutual fund returns are variable: growth is not credited at a fixed promised annual rate. Negative returns also change the base from which later gains or losses occur.
Use the SIP calculator to explore a monthly contribution, period and assumed return. Try lower-return scenarios too. A calculator projection is an illustration, not a forecast or assurance.
What an SIP cannot do
- Remove the underlying scheme's market or credit risk.
- Guarantee that your goal amount will be reached.
- Make an unsuitable investment appropriate for a short deadline.
- Replace a cash buffer for emergencies or upcoming bills.
What to check before starting
Confirm your goal, available monthly surplus, KYC status, plan and option. Review costs, exit conditions and the scheme documents. Keep enough balance for scheduled payments and retain confirmation of your mandate and transactions.
If you already have a sum available, read SIP vs lump sum investing. For help preparing the paperwork, see our first-investment checklist.
Frequently asked questions
Can I lose money in an SIP?
Yes. An SIP invests into a market-linked scheme. The value of its units can fall below the amount contributed, even when purchases are spread over time.
Can I increase or stop my SIP?
Available facilities and processing timelines depend on the scheme, mandate and platform. Cancelling future instalments is different from redeeming units you already hold.
Sources and further reading
Sources checked 20 Oct 2026. Check the latest provider documents for scheme-specific terms and processes.