A Systematic Investment Plan (SIP) is not a product in itself. It is a way of investing a fixed amount in a mutual fund scheme at regular intervals, usually every month, through an auto-debit from your bank account.
Units and NAV
Every time your SIP instalment is invested, you receive units of the scheme at that day's Net Asset Value (NAV). If the NAV is ₹50 and your instalment is ₹5,000, you receive 100 units. The value of your investment on any day is the number of units you hold multiplied by the current NAV.
Rupee cost averaging
Because the amount stays fixed while the NAV changes, you buy more units when the NAV is low and fewer when it is high. Over time, this averages your purchase cost across different market levels. It removes the need to time the market, but it does not ensure a profit and does not protect against loss when markets fall for long periods.
What you can change
- You can increase the amount through a top-up facility, where the AMC offers one.
- You can pause a SIP for a few months as per the AMC's rules.
- You can stop a SIP at any time; units already allotted stay invested.
Things to keep in mind
Choose a debit date when your account has enough balance, as repeated failed debits may lead to cancellation. Read the scheme information document and check the risk-o-meter before starting a SIP, and review your SIPs from time to time to confirm they still match your needs.