A Systematic Investment Plan (SIP) is simply an instruction to invest a fixed amount in a mutual fund scheme on a fixed date every month. The amount is auto-debited from your bank account and units are allotted at that day's Net Asset Value (NAV).
Because the NAV changes every day, the same ₹5,000 buys more units when markets fall and fewer when they rise. Over years, this averages your purchase price — a mechanism called rupee cost averaging.
The maths behind it
The future value of a monthly SIP is calculated as FV = P × [((1+r)^n − 1) / r] × (1+r), where P is the monthly amount, r is the monthly rate of return and n is the number of instalments.
At 12% annual return, a ₹10,000 monthly SIP for 20 years invests ₹24 lakh and can grow to roughly ₹1 crore. Almost 76% of that is growth, not your contribution.
Common mistakes
Most SIP disappointment comes from behaviour, not from the product.
- Stopping the SIP when markets fall — exactly when units are cheapest
- Choosing a fund on last year's return instead of the goal and horizon
- Running a 3-year SIP for a 20-year goal, or the reverse
- Never increasing the SIP amount as income grows (a step-up beats a static SIP)