What is SIP? & How it works?

If you dream of becoming wealthy and want to work towards it, investing in mutual funds through Systematic Investment Plans (SIP) might be the best option that will assist you in reaching your goal.

Investors can begin with a small amount of money and gradually build up a savings fund by following a systematic and planned method. When an individual activates a SIP, a fixed amount of money is regularly taken from their bank account and transferred to a mutual fund.

This article discusses what is SIP, its benefits, and how it works.

What is SIP?

A Systematic Investment Plan, or SIP, is a way to invest money systemically. Instead of investing a large amount of money at once, policyholders invest a fixed sum at regular intervals, like every month or every three months.

SIPs are designed to save and grow money over time. By investing regularly, one can take advantage of the power of compounding, which can potentially lead to long-term savings and help to achieve desired financial goals.

It became popular among people in India who invest in mutual funds because they help you invest in a disciplined and systematic way. And one doesn’t need to worry about when to invest or how the market is doing because investing in mutual funds is money-money.

Hence, SIPs are a great product to invest in for the long term. It’s even better if it is started at a young age. The earlier a person starts a SIP, the better it is and the more benefits it provides.

One can make the most of the money in the end when investing at an early age. To generate more savings, set a goal to invest and to get valued returns consistently.

A policyholder selects the scheme, the amount they want to invest in, the frequency, the dates on which they want to invest, etc. Let us discuss

● SIP Frequency

SIP frequency refers to the intervals of mutual fund schemes-Monthly, Quarterly, etc. Some companies provide facilities for daily, weekly, and fortnight light SIPs. The most common SIP frequency is monthly, allowing you to invest regular monthly savings.

● SIP Date

It is the date of the month when a person chooses to invest in SIP. Ideally, choosing a date at the beginning of the month is suggested just after the salary is credited or just after EMI deduction.

● SIP Amount

It is the amount an individual chooses to invest. In most insurance firms in India, a person can start an investment of SIP with a minimum Rs 500 every month. There is no maximum limit for the amount that can be invested through SIP.

● SIP Bank Mandate

To invest in a plan, register for Systematic Investment Plan by submitting a bank Electronic Clearing Services (ECS) or National Automated Clearing House (NACH) mandate where a person has to specify the SIP amount, the interval, and the SIP date.

Benefits from SIP provided by mutual fund

Investing in SIP holds multiple benefits.

  • Provides a disciplined approach to investing
  • It Inculcates the savings habit
  • Provides a wide choice of schemes
  • Allows low investment amount
  • Allows to choose diversified investments
  • Helps achieve your long-term goals

How does SIP work?

SIP by mutual funds works on two main principles:

● Rupee Cost Averaging

SIP can help to escape market volatility by subtracting the predicted game of market performance. Regular Investment ensures the required purchase cost is earned for the long benefit.

When the market experiences highs, the policyholder receives fewer units; when the market falls, they receive more units. This lessens the risk and ensures that a person is acquiring Investment at a lower cost per unit.

● Power of Compounding

Saving a small amount of money regularly for a regular and long period can provide an outstanding benefit because of the compounding. Compounding works on the principle of earning interests on interests, leading to extraordinary growth over time. If a person consistently invests in SIP, the amount becomes a significant corpus due to the power of compounding.


SIP is an ideal investment for long-term financial goals, including retirement planning, children’s education, and children’s wedding. Consult with a financial planner and start SIP to earn long-term comfort and benefit for your financial goals. Investing in SIP leads to wealth generation.

News Reporter