Mutual funds can be invested in lots of different ways, but one way is especially simple and disciplined. This guide explains in simple terms what is SIP in mutual fund investing and how SIPs are part of the bigger picture of mutual fund investing.
What is SIP in Mutual Funds Investment?
What is SIP in Mutual Fund? Systematic Investment Plan (SIP) is a method of investing in a mutual fund scheme in smaller pre-scheduled amounts instead of a large lump sum amount. It is not a separate category of mutual funds. It is just an investment option available under most of the mutual fund schemes along with the lump sum option.
When you choose SIP as your mode of investing, it is you who decides how your money is put into a scheme, while the scheme itself – be it equity, debt, hybrid or otherwise – decides where that money is actually invested.
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How SIP works in a mutual fund scheme
A mutual fund scheme is where funds are pooled from some investors, and the same is invested as per a specific objective – be it growth through equities, stability through debt instruments or a mix of the two. When investing through SIP:
- You add your fixed instalment to the scheme at every interval.
- You are allotted units on the basis of NAV of the scheme on that day.
- Each instalment is added to your total holding under the scheme and market-linked gains or losses.
This structure means that your SIP investment experience is directly proportional to the performance of the scheme chosen during the investment period.
Why investors like SIP in Mutual Funds
Generally, investors who prefer SIP in the mutual fund ecosystem are:
- Rather than dumping a lot of money all at once, prefer to invest slowly.
- Favor a systematic, automated approach to investing.
- Are saving for a long-term goal, such as retirement or a child’s education.
- Want to ease some of the pressure of trying to pick the “right” time to invest?
Mutual Funds SIP Options Available
Mutual funds may have multiple variants of SIPs depending upon the scheme and the platform such as:
- Regular SIP – a fixed sum at a regular frequency.
- Step-up SIP – SIP installments that increase from time to time.
- Trigger SIP — installments tied to a pre-determined condition, if available.
- SIP tailored to your goal — a specific target amount and time frame.
Things to Remember
SIP is a process and not a guaranty. So the returns in mutual funds are tied to the market. The value of the investment may fluctuate with the performance of the underlying scheme. Past performance is not a guide to future performance. But, even before investing in a SIP too, one needs to check the scheme’s investment objective, riskometer and expense ratio.
Read more about The Whole Process
Learn more about how SIPs work in mutual funds, including rupee cost averaging and scheme selection, read our complete SIP Guide.
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SIP Return Calculator
Want to know how much a SIP in a selected mutual fund scheme can potentially grow over a period of time? Use the SIP Calculator to get an illustrative projection.
Understanding What is SIP in Mutual Funds
To make smarter decisions while planning your investments. This is brought to you by Tata Mutual Fund to help you in your mutual fund investing journey! This guide is brought to you by Tata Mutual Fund to assist you in your mutual fund investing journey.
Mutual Fund investments are subject to market risk. Please read all scheme-related documents thoroughly.