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Written bySumit Narula
Published 27th November 2025
Reviewed byPrateek Pandey
Last Modified 13th June 2026
Investment Expert
What is SIP?
A systematic investment plan, commonly known as SIP, is an investment strategy where you as an investor can put a fixed amount of money in your preferred mutual fund at regular intervals. It enables you to participate in the stock markets without actually timing them.
In simple terms, SIP is a smart and hassle-free mode of investment where you can contribute a pre-determined sum on a weekly, monthly, quarterly basis. They are flexible in nature, and thus an investor can choose to increase or decrease the investment amount or even stop investing in SIP whenever they want
Systematic Investment Plan is one of the effective options available for beginners and for people who do not know much about how the financial market operates.
| Frequency Under SIP | Minimum Instalments | Minimum SIP Amount |
|---|---|---|
| Yearly | 3 | ₹12,000 / in multiples of ₹1 |
| Monthly | 6 | ₹100 / in multiples of ₹1 |
| Weekly | 6 | ₹100 / in multiples of ₹1 |
| Daily | 6 | ₹100 / in multiples of ₹1 |
How Do SIPs Work?
If you are wondering how a systematic investment plan works, the following steps explain the process:
- Investors Select the Scheme: You can choose the mutual fund scheme based on your goals, risk appetite, and investment horizons. This investment requires periodic, consistent investments and works like a recurring deposit.
- Select Investment Amount and Frequency: You decide the amount and the investment frequency. This frequency can be quarterly, monthly, weekly, or daily.
- Automatic Deductions: When you start this investment, a fixed investment amount is auto-debited from your bank account.
- Units Allocation: Based on the scheme’s current Net Asset Value (NAV), you get Mutual fund units. This is the price you pay per unit of the scheme.
- Growth and Compounding: Investments benefit from compounding, resulting in wealth building over time.
Example
Suppose that the NAV for a mutual fund is ₹10. If you invest ₹2,000 in this mutual fund, you will receive 200 units of the scheme. With the increase in NAV, your investments will also grow. So, assuming that the NAV rises to ₹20 next year, the 200 units you bought for ₹2000 would be worth ₹4000.
Types of SIPs
Different types of systematic investment plans help investors benefit from long-term wealth building. Here are the various types of SIPs with their meaning and key benefits:
| Types of SIP | Meaning | Key Benefits |
|---|---|---|
| Top-Up SIP | This investment type allows you to increase your contribution over time based on growth and your financial goals. | Used to maximise returns by growing investments in well-performing mutual fund schemes. |
| Perpetual SIP | This type of regular investment continues until the investor manually stops it. | Investors can redeem the investment at any time, but setting an end date helps maintain discipline. |
| Trigger SIP | Tigger SIP lets you set the conditions, such as NAV level, index value, and start date. This is to initiate or modify the contribution. | Beginner investors with limited market knowledge who want automated decisions can benefit from the Trigger SIP. |
| Flexible SIP | Flexible SIP allows you to increase or decrease the contribution amount and skip instalments if required. | It provides flexibility for investors based on their financial situations, which is helpful during income fluctuations. |
Who Should Invest in SIP?
Here are some of the individuals who can significantly benefit from investing in a systematic investment plan:
- Beginner Investors: SIPs are incredibly beneficial for beginners investing in mutual funds. This also allows them to understand market fluctuations without indulging in high-risk investments.
- Salaried Individuals: Individuals with regular monthly income can invest a fixed amount each month. This helps them generate wealth over time without straining their incomes.
- Individuals Seeking Long-Term Savings: People can develop a habit of saving and investing consistently to ensure financial discipline.
- Individuals Planning for Future Finances: SIPs can help you achieve your future goals. These goals can be worry-free retirement, buying a house, higher education, or wealth creation.
Who Should Invest Through SIP?
If you are a first-time mutual fund investor, you can consider starting your journey by investing through a systematic investment plan. SIPs are ideal for people who have a regular source of income, such as a salary. This way, investors can easily divert a small portion of their income towards mutual funds through a SIP plan.
SIPs instill financial discipline in the long run as you have to set aside a fixed amount of money at regular intervals.
SIP or One-Time? Where to Invest?
First-time investors usually get confused about whether they should go for a systematic investment plan or a one-time investment. In the case of one-time investments, you only need to make a one-time payment of a significant amount of money. On the other hand, you need to invest a fixed amount at regular intervals in a mutual fund scheme.
One-time investments can be beneficial if you have a large sum of money at hand that can be invested immediately. However, if that is not the case, you should go for SIPs, under which you are only expected to set aside a small amount at regular intervals.
Here are some of the key differences between a one-time investment and a SIP investment –
| One-Time Investment Plan | Systematic Investment Plan |
|---|---|
| The investor needs to make a lump-sum payment during the tenure | SIP includes periodic investments, where the investor contributes a fixed amount regularly in a scheme of their choice |
| In general, a one-time investment generates more investment returns when the market is progressing. | SIPs usually bring more return on investment when the market dips. |
| It can result in losses at the time of market fluctuations. | rupee cost averaging in a systematic investment plan helps deal with the market crash. |
Benefits of Investing in Mutual Funds via SIP
A systematic investment plan offers a wide variety of benefits to its investors. The most significant advantage of investing in SIPs is that you do not need to time the financial markets, as you benefit from both bullish and bearish market trends
SIPs help reap sizeable returns by investing a small amount of money regularly. Here are some of the key benefits provided under a systematic investment plan: -
· Power of Building on
The compounding in SIPs occurs when your returns start earning returns. In other words, the returns generated by your regular SIP investments gets reinvested in the plan. In the long-term, this can increase your potential returns substantially. The ideal strategy to maximize your gains through a systematic investment plan is to invest for an extended period.
· Low Initial Investment
You can invest in mutual funds through a systematic investment plan starting with only Rs. 500 per month. This is an affordable way to invest without putting any stress on your pocket. With the rise in your income, you can increase your investment amount via the SIP step-up feature.
· Rupee Cost Averaging
SIP investors do not need to time the financial markets, as they can buy more units when markets perform low and buy fewer when the markets perform high. The averages out the overall investment cost.
· Higher Returns Than RD
A systematic investment plan offers about two times the returns when compared to standard Fixed deposits (FDs) and Recurring Deposits (RDs). The SIP plan can generate enough returns to beat inflation efficiently. Moreover, they can help deal with the market fluctuations and offer returns regardless of the market performance.
· Tax Benefits
The investment in eligible mutual fund made towards mutual funds through SIPs offers tax benefits up to a maximum of Rs. 1.5 lakh under section 80C of the Income Tax Act of India, 1961.
How to Customize Your SIP Plan?
Most investors, especially the salaried ones, prefer the monthly SIP investment plan. SIPs help them directly transfer the investment amount to the fund when they receive their monthly income. However, there are some ways you can customize your systematic investment plan through its types: -
Frequency of SIP
You can invest in the mutual funds through SIP on a weekly, fortnightly,quarterly, or half-yearly basis. In case you want to invest for the future without an end date, you can do that as well. You can do this through a Perpetual SIP option.
Perpetual SIP
Under perpetual SIP, you can easily transfer a fixed amount to the mutual fund of your choice for as long as you like. This is a good option for the people who need a large corpus to fulfil a significant financial goal in the distant future.
Step-Up SIP
The Step-Up SIP allows a step-up or an increase in your SIP investment amount on a regular basis. Let us take up an example to understand this a little better. Imagine you start a SIP with Rs. 2000 per month. You can give standing instructions to your bank to step-up your investment amount. If you plan to step-up by Rs. 1000 per year, you will need to invest Rs. 2000 per month in the first year, Rs. 3000 per month in the second year and so on.
The two key benefits of stepping up your SIP investments: -
- You can build a larger corpus during your tenure.
- You can achieve your financial goal earlier.
Conclusion
Investing in mutual funds through a systematic investment plan (SIP) is a popular and lucrative way to grow your wealth. People find it very convenient due to multiple reasons such as flexible investment amount, rupee cost averaging benefit, fund management by experts, benefit of compounding, etc. What’s more, the tenure and frequency of a SIP are also flexible which further increases the convenience offered by this investment strategy
However, SIP returns are not guaranteed and while this can be an effective as well as convenient method of wealth creation, it is a purely investment oriented product. As a result, SIP investments by themselves cannot ensure the financial protection of your loved ones in the event of your untimely demise. This is why you should consider purchasing a term plan such as the Axis Max Life Smart Term Plan Plus. This type of life insurance policy offers substantial life cover benefit at an affordable cost to secure the financial future of your loved ones. This means that you can stay on course to reach your financial goals via your SIP investments while providing much needed protection to your loved ones without major adverse impact on your finances.
Frequently Asked Questions
Why should I invest in a systematic investment plan?
A SIP investment plan is a simple, safe, and cost-effective way to invest your savings in mutual funds. It is a great investment option if you want to minimize your risks and invest regularly.
What is the best time to invest in a SIP plan?
The fact is—there is no ‘best’ time to invest through a systematic investment plan. The important thing to note is that you do not need to time the market or wait for the opportunity to invest in market-linked securities. SIPs make investment simpler and help automate the entire process.
Can I miss a SIP payment?
Yes, you can miss SIP payments. And when you do, your account will not be deactivated. Mutual fund houses offer an option to pause the payments for a specific period. This is a useful feature you can use in case you face any financial difficulties.
How safe is it to invest in SIP?
SIP is the safest way to invest as it allows you as an investor to invest fixed amounts regularly. SIPs are a planned approach towards investment and act as a financial cushion by developing a habit of saving.
How do I start my SIP investment plan?
You can start investing in SIPs by selecting a fund of your choice. But before that, you need to complete the necessary formalities and provide your KYC details to the Asset Management Company (AMC).
How can I extend my SIP duration?
After completing your SIP term, you can renew your investment. Fill out the required form and state the tenure of investment to extend your SIP duration.
How do I shorten my SIP plan?
To shorten your systematic investment plan, contact your house by writing an application to them. You can even put up an online request. Make sure that you have completed the minimum investment period for the request to be considered.
How much should I invest in mutual funds through a systematic investment plan?
Most fund houses allow the investors to start investing through SIPs with just Rs. 500. And there is no upper limit for the investment amount.
What would happen if I miss my SIP installment?
A default on SIP installment can be because of insufficient balance in the bank account. Nevertheless, you don’t need to worry if you miss your SIP installment for the month. The default amount will be added to the next month’s installment. However, it is to be noted that a default on SIP installments for 3 consecutive months can lead to termination of SIP.
Is there a minimum amount to invest in SIP?
The minimum amount to invest in SIP is INR 500. You can start with this amount to generate a significant corpus on maturity.
How can you automatically renew your SIP?
If your SIP is nearing maturity and you wish to continue it to generate maximum wealth, you can automatically renew your SIP by sending out a renewal request at least 30 days before the maturity date. It’s advisable to contact your asset manager for detailed process as process varies according to the asset management company.
What is the difference between Top-Up SIP / Step-Up and regular SIP?
A regular systematic investment plan lets you invest a fixed amount regularly. A Top-up SIP lets you increase your investment at certain times. Choosing between the two depends on an investor's needs and long-term financial goals.
Can I pause my SIP?
Yes, you can pause your investment for a short time. This lets you stop investing temporarily without canceling it. For this, log in to your investment portal and pause the investment or simply submit a request form.
Is SIP better than a lump-sum investment?
Neither an SIP nor a lump sum is better by itself. Choosing between them depends on several factors. These include your financial situation, how much risk you can handle, and your investment goals.
How are SIP returns calculated?
For this, we use the Future Value (FV) formula for annuities. This formula includes regular investment (P), the monthly interest rate (r), and the total number of payments (n). The following is the basic formula to calculate the returns:
FV = P × ([ (1 + r)^n – 1 ] / r) × (1 + r).
You can use an online SIP calculator to estimate your returns. Just enter the monthly amount, tenure, and expected rate of return.
FV = P × ([ (1 + r)^n – 1 ] / r) × (1 + r).
You can use an online SIP calculator to estimate your returns. Just enter the monthly amount, tenure, and expected rate of return.
ARN NO: PCP/SIP/050623
Sources:
[1] www.sebi.gov.in/sebi_data/faqfiles/may-2017/1494501305219.pdf
[2] www.incometaxindia.gov.in/Pages/tools/deduction-under-section-80c.aspx
[3] economictimes.indiatimes.com/industry/banking/finance/what-is-sip-types-of-sip-how-it-works/articleshow/77991976.cms
[1] www.sebi.gov.in/sebi_data/faqfiles/may-2017/1494501305219.pdf
[2] www.incometaxindia.gov.in/Pages/tools/deduction-under-section-80c.aspx
[3] economictimes.indiatimes.com/industry/banking/finance/what-is-sip-types-of-sip-how-it-works/articleshow/77991976.cms
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