A Systematic Investment Plan (SIP) allows investors to invest a predetermined fixed amount in a chosen mutual fund scheme at regular intervals — typically monthly or quarterly. It is one of the most popular investment modes in India, with over 7.9 crore active SIP accounts as of 2024.
**How SIP works**: Each installment purchases mutual fund units at the prevailing Net Asset Value (NAV) on the investment date. When markets are high, fewer units are purchased; when markets are low, more units are bought. This mechanism is called rupee cost averaging.
**Key benefits**: Disciplined investing habit, rupee cost averaging, affordability (starts at ₹500/month), no need to time the market, and compound growth over time.
**SIP vs lump sum**: SIP spreads investment risk over time, making it suitable for salaried individuals with regular monthly income. Lump sum investing carries higher risk if timed poorly.
The SIP return formula: M = P × [((1+r)^n - 1) / r] × (1+r), where P = monthly investment, r = monthly return rate, n = number of months.