The idea of SIP in Mutual Funds in India needs no introduction. Investors like us already know how SIP works and why it’s useful. But nevertheless, I thought it would be a good idea to highlight the advantages of SIP in India (2025) and facts about SIP as a sort of memory refresher.
SIP (or Systematic Investment Plan) is the most popular approach to invest in mutual funds where the investor invests a fixed amount at period intervals (mostly monthly) without any regard for market ups and downs.
So if you were to ask me – What is SIP? Then the answer is that SIP is an investment tool that allows investors to invest in mutual funds. Under the SIP mode of investment, regular and systematic investments are made towards a particular scheme for a period.
There are numerous SIP success stories that show how SIP creates wealth in the long run.
And the concept of SIP has garnered quite a lot of attention in the past decade or so. Every mutual fund investor, new or old (and those who choose SIP over lumpsum) wish to enjoy mutual fund benefits through this mode of investment. As I said earlier, I am sure you already know most things about SIPs. But if you have a bit of doubt, this article will clearly establish why small retail investors should give importance to SIP.
Benefits of investing in SIP
There are several benefits of investing in mutual funds via the SIP mode of investment. Some of them are discussed below:
- Disciplined investing – SIP investments are autonomous. Once you give the SIP mandate, you don’t need to do anything and investments happen automatically. This automation instills a sense of regular investment and financial discipline that is so crucial for successful investing. You do not have to manually invest in mutual funds on a periodic basis; SIP investment automatically does that for you. And this non-dependence on you is what works wonders in the long run by removing the emotions out of investing.
- Time in the market – You might have often heard mutual fund experts advising that you must ‘Buy low and sell high’. That is, about timing the markets. However, it is not easy as it sounds. Not impossible but quite difficult. Several smart investors occasionally face heavy losses due to their failed attempts to time the markets by being a bit more adventurous than what is prudent. Rather than trying to time the markets which are quite volatile and unpredictable, SIP investments believe in the concept of time in the market. They force you to invest irrespective of market conditions and hence, average out your investment costs.
- Rupee Cost Averaging – You already know this. As SIP invests in mutual funds across market cycles, you end up investing in both bull market and bear market phases. When the markets are down, you end up buying a higher number of units than when the markets are high. This averages out the cost of the mutual fund units bought. This concept is known as rupee cost averaging. And this is the major benefit of SIP investing. You reduce the risk of getting your market timing wrong. Investing in a lump sum can have a lot of pitfalls. You may invest a lump sum at a time when you end up catching a market peak. SIPs are beneficial because it helps you save the unnecessary and often futile effort of timing the market. And don’t worry too much about picking the best date for SIP. It’s a non-issue.
- Power of Compounding – You would have heard about this too many times. When you invest in mutual funds via SIP, you do not have to wait to accumulate the entire investment amount and then invest in your desired mutual fund schemes. As SIP allows you to invest even a small amount, you can start early with your investments. And the earlier you begin with your investments, the higher you will receive the benefits of compounding.
- Ease of investing – This is important. Many investors are too lazy to invest regularly on their own. There is a lot of inertia. SIP allows investors to invest automatically and as low as Rs 100 per month. You can also invest in mutual funds online via SIP from the comfort of your home. It is quite effortless and hence, helps investors get going without much effort.
- Lighter on the pocket – I mentioned earlier that unlike lumpsum mode of investment, you do not have to invest your entire investment amount in one go. You can divide your investment into tiny installments, making it easier on your cashflows. Let’s say you earn Rs 50,000 per month. You can start by investing Rs 1000 per month SIP too if not more (like a Rs 5000 SIP or a Rs 25,000 SIP).
Note – Here are some mutual funds FAQs on SEBI’s website that also include some useful points about SIP and its importance for mutual fund investors
Those are some of the benefits of SIP. But since I am talking about SIP, there are few more points that I would like to highlight:
- Step up your SIP every year – You may start your SIP investment with a small amount every month. But it’s highly recommended to increase your monthly SIP amount by at least the rate at which your income grows. So let’s say you start with Rs 5000 monthly SIP. If you do this regularly for the next 20 years, you will end up with Rs 49-50 lakh (at 12% returns). But if you increase the SIP every year by just 10%, then in 20 years, you will have Rs 95 lakh to Rs 1 crore! If you step up your SIP every year so that it grows with an increase in your income, then you will surely build up a huge corpus over time. And this is strongly advisable for SIP in mutual funds for Retirement.
- How to decide monthly SIP amount – Don’t invest random amounts. It’s best to invest via SIP for each of your goals. So let’s say you do some calculations and figure out that for your son’s higher education goal, you need to do a SIP of Rs 10,000 per month. For the daughter’s education, you need Rs 8000 SIP while for her marriage, you need Rs 6000 monthly SIP. And finally, for Rs 5 crore retirement corpus, you need Rs 15,000 per month SIP. So in total, you need to do Rs 10,000 + Rs 8000 + Rs 6000 + Rs 15,000 = Rs 39,000 monthly SIP. Now if your salary and expenses permit this investment amount, then good for you. Else if you don’t have the surplus to invest Rs 39,000 per month, then you know that to achieve your goals, you need to earn more (and/or spend less) so that you can invest the required amount every month. So this is one very good example of why you need to realize that even though Long Term SIP works. But only if you invest the right SIP amount for each of your goals.
- Every now and then, your SIP returns might look dismal and you may feel like quitting. But don’t. SIPs are not to be blamed. When stock markets are not doing well, even SIPs will have a hard time. SIP is just a way of investing and not a product in itself. Isn’t it? So when your SIP returns start looking disappointing, I would suggest you stay put to your SIP investment plan unless you need the money in the next 1-3 years.
- When you start SIP investing, over a period of few years, you will accumulate a large corpus. At that point, don’t have a narrow vision and ignore the existing portfolio and worry about starting/stopping SIP that many investors make the mistake of. Don’t miss the forest for the trees. Suppose over a period of 10 years, you have been doing a monthly SIP of Rs 30,000 per month. That is, you have made total SIP investments of Rs 36 lakh, (i.e. Rs 30,000 x 12 months x 10 years). Now due to a rising market during the last few years, the value of your investment has increased to Rs 90 lakh. You may now be worried that the market will fall soon (as it has been rising for a long time). As a result, you are worried and want to take some corrective action. Many investors worry about whether to stop SIP for some time or not. This isn’t a wrong thought to have. But the more important thought that you should have at this point is whether there is a need to make changes in the accumulated corpus of Rs 90 lakh. Rs 30,000 is nothing compared to the existing corpus of Rs 90 lakh. Right? You need to be more worried about that. And hence, you need to rebalance it if you deem it necessary as per your goal time horizon and risk profile.
- The idea of SIP is great. But doing SIP in any random fund wouldn’t do. You got to select the right mutual fund. And please don’t trust any mutual fund star ratings
So that’s all about mutual fund SIPs and why they are beneficial.
SIP + Long Term = Huge Wealth Creation
Ofcourse this is not guaranteed. But it is highly probable if you stick with it and continue your SIPs for several years. Start your mutual fund SIPs whenever you can. But it is best to start SIP as early as possible.
I have painted SIP in bright light. But don’t get the wrong idea that it’s a guaranteed formula for success. It is not. But still, it’s a small investor’s best bet. SIP isn’t ‘theoretically’ perfect like a Buy-Low-Sell-High strategy. But it is a fairly good option when it comes to the practical utility for common investors.
So go ahead and plan your Wealth creation through mutual fund SIP in India (2025).