Introduction
Systematic Investment Plan (SIP) is one of the simplest and most disciplined ways to invest in mutual funds in India. SIP allows you to invest a fixed sum regularly—monthly, quarterly, or weekly—rather than investing a large sum at once. This makes SIP an ideal investment option for beginners who want to build wealth gradually and safely.
In India, SIP has become popular because it encourages regular saving, reduces market timing risk, and helps investors benefit from currency cost averaging and long-term compounding. Whether you are a salaried employee, self-employed professional, or a student, SIP helps you start investing with as little as Rs.500 per month.
In this novice guide, we will explain what is SIP, how SIP works, its benefits, and how you can start a SIP in India step by step. This guide is specifically written for first-time investors who want a simple and clear understanding of SIP investments.
What is SIP? How to Start SIP in India – A Complete Beginner’s Guide
What is SIP (Systematic Investment Plan) is one of the most common questions amongst beginners. Investing is one of the most important financial decisions you will ever make. Many people want to invest but feel confusing due to a lack of knowledge, fear of loss, or market complexity. This is where SIP(Systematic Investment Plan) becomes one of the best investment solutions for beginners.
In this detailed guide you will learn
- How SIP works
- Types of SIP
- Benefits of SIP
- SIP vs Lump Sum
- How to start SIP step by step
- Best SIP for beginners
- Common mistakes to avoid
- SIP returns calculation
- SIP tax rules in India
Let us start from the basics.
What is SIP?
What is SIP? SIP (Systematic Investment Plan) is an investment method in which you invest a fixed amount of money regularly (monthly, quarterly, or weekly) into a mutual fund.
Instead of investing a large sum at one time, SIP allows you to invest small amounts consistently.
Simple Definition:
SIP is a disciplined method of investing in mutual funds by investing a fixed amount at regular intervals.
Example:
If you start a SIP of ₹1,000 per month, that amount will be automatically invested in a chosen mutual fund every month.
How Does SIP Work?
When you invest through SIP:
- A fixed sum is deducted from your bank account.
- Mutual fund units are purchased at the current NAV(Net Asset Value).
- Over time, you purchase units at different prices.
- This averages out the cost of investment (called rupee cost averaging).
Example:
- Month 1: NAV = ₹50 → You get 20 models
- Month 2: NAV = ₹40 → You get 25 models
- Month 3: NAV = ₹25 → You get 40 models
Over time, your average cost per unit becomes lower, minimizing risk.
What is SIP in NAV?
NAV(Net Asset Value) is the price of one unit of a mutual fund.
- NAV changes daily
- What is SIP units are assigned based on NAV on investment date
- Lower NAV = more units
- Higher NAV = units
Why is SIP best for beginners?
What is SIP is highly recommend for beginners because:
- No need for market timing
- Small investment amount
- Lower risk than lump sum
- Builds financial discipline
- Suitable for long term wealth creation.
Even students, salaried workers, and small business owners can start SIP easily.
Benefits of What is SIP Investment
1. Rupee Cost Averaging
You buy more units when the market is down and fewer when the market is up.
2. Power of Compounding
Long-term SIP investment grows exponentially due to compounding.
3. Low Starting Amount
You can start SIP with as low as Rs.500 per month.
4. Disciplined Investment
Automatic deduction ensures regular investments.
5. Flexible
You can:
- Increase SIP amount
- Pause SIP
- Stop SIP anytime
Types of SIP
1.Regular SIP
Fixed amount invested at regular intervals.
2.Top-Up SIP
You increase SIP amount periodically (e.g., ₹1,000 to ₹1,500).
3.Flexible SIP
Investment amount changes based on your income or market condition.
4.Perpetual SIP
No end date; continues until you stop it manually.
5.Trigger SIP
Investment triggered based on market conditions(advanced users).
SIP vs Lump Sum Investment
| Feature | SIP | Lump Sum |
|---|---|---|
| Investment Amount | Small & Regular | Large One-Time |
| Market Risk | Lower | Higher |
| Best For | Beginners | Experienced Investors |
| Market Timing | Not Required | Required |
| Discipline | High | Depends on Investor |
Verdict: What is SIP is safer and better for beginners.
Who Should Invest in SIP?
SIP is suitable for:
- Beginners
- Salaried employees
- Students
- Housewives
- Small business owners
- Long-term investors
Anybody who wants stable wealth creation should invest in SIP.
Minimum amount required to start SIP
- Minimum SIP amount: ₹ 500 per month
- No maximum limit
- Some funds allow SIP from Rs.100
How to Start SIP – Step by Step Guide(Beginner Friendly)
Step 1: Set Your Financial Target
Decision why you want to invest:
- Retirement
- Child education
- Buying a house
- Wealth creation
Step 2: Complete KYC
You must complete KYC( Know Your Customer).
Documents required:
- PAN Card
- Aadhaar Card
- Bank Account
- Mobile number linked to Aadhaar
kyc can be done online in 10 minutes.
Step 3: Choose SIP Platform
You can start SIP through:
- Mutual fund websites
- AMC apps
- Zerodha Coin
- Groww
- Paytm Money
- Banks
Select Direct Mutual Funds to save commission.
Step 4: Select Mutual Fund Type
For beginners, best choices are:
- Large Cap Funds
- Index Funds
- Balanced / Hybrid Funds
Avoid small-cap funds initial if you are new.
Step 5: Determine SIP Amount & Date
- Start with an affordable amount
- Select a date after salary credit
- Monthly SIP is most popular
Step 6: Set Auto-debit Mandate
- Register ECS or AutoPay
- Money will be automatically subtracted every month
Step 7: Track and Review Investments
- Review performance once a year.
- Increase SIP when income rises
- Stay invested long term
Best SIP Mutual Funds for Beginners(Examples)
For educational purposes only.
- Nifty 50 Index Fund
- Sensex Index Fund
- Large Cap Equity Fund
- Hybrid Equity Fund
Always check:
- Expense ratio
- Fund history
- Fund manager
SIP Returns-How Much Can You Earn?
SIP returns depend on:
- Fund Type
- Investment duration
- Market performance
Example SIP Calculation:
- Monthly SIP: ₹5,000
- Duration: 20 years
- Expected return: 12%
Total Investment: ₹ 12,00,000
Estimated Price: ₹49–50 lakhs
This shows the power of long-term sip.
Power of Compounding in SIP
Compounding means:
Return generate further return.
The longer you remain invested, the higher your wealth grows.
Time is more important than quantity in SIP.
SIP Taxation in India
Equity Mutual Funds:
Holding < 1 year → Long Term Capital Gain (15%)
Holding >1 year → Long Term Capital Gain
Up to ₹1 lakh → No tax
Above ₹1 lakh → 10% tax
Debt Mutual Funds:
Taxed as per income slab(new rules).
Can You Stop or Pause SIP?
Yes, SIP is fully flexible:
- Pause SIP anytime
- Modify SIP amount
- Stop SIP without penalty
Common SIP Errors Beginners Must Avoid
- Stopping SIP during market collapse
- Expecting quick returns
- Investing without a goal
- Selecting funds only based on past returns
- Not increasing SIP amount
SIP vs FD – Which is Better?
| Feature | SIP | FD |
|---|---|---|
| Returns | Higher (Long-term) | Fixed & Lower |
| Risk | Market-linked | Low |
| Inflation Protection | Yes | No |
| Wealth Creation | High | Limited |
For long-term goals, SIP is better than FD.
SIP for Different Goals
SIP for Retirement
- Start early
- Equity-oriented funds
- Long-term horizon
SIP for Child Education
- Balanced or large-cap funds
- Goal-based planning
SIP for Wealth Creation
- Index funds
- Long-term discipline
How long should you stay invested in SIP?
- Minimum: 5 years
- Ideal: 10–20 years
- Longer duration=better returns
Is SIP Safe?
SIP itself is safe, but:
- Mutual funds are market-linked.
- Returns are not guaranteed
- Long-term investments reduces risk.
SIP Myths You Should Ignore
- SIP gives guaranteed returns
- SIP is only for rich people
- SIP needs large investment
- SIP is risky
Final Ideas: Should Beginners Start SIP?
Yes, absolutely.
SIP is:
- Simple
- Affordable
- Disciplined
- Powerful for long-term wealth
If you are a beginner and want to start investing without stress, SIP is the best alternative.
Conclusion
SIP is one of the smarter ways to invest in mutual funds, especially for beginners. You do not need market knowledge, huge capital, or perfect timing. All you need are discipline, patience, and consistency.
Start small, remain invested, and let compounding work for you.
FAQs (Use Exactly As It Is)
1.What is SIP in mutual funds?
What is SIP? SIP (Systematic Investment Plan) is a method of investing a fixed sum regularly in mutual funds. It helps investors build wealth slowly through disciplined and long-term investing.
2.How does SIP work?
In SIP, a fixed sum is invested automatically at regular intervals. As explained in what is SIP, mutual fund units are purchased at different NAVs, which helps in currency cost averaging and reduces market risk over time.
3.What is the minimum amount required to start SIP?
Most mutual funds allow investors to start SIP with as little as ₹500 per month, and some funds even allow SIP investments starting from ₹100.
4.Is SIP good for beginners?
Yes, SIP is ideal for beginners because it requires a small investment sum, does not require market timing, and helps build long-term financial discipline, which clearly explains what is SIP and why it is suitable for new investors.
5.Can I start SIP online?
Yes, you can start SIP online via mutual fund websites, mobile apps, banks, or investment platforms after completing KYC.
6.Which SIP is better for beginners?
For beginners, index funds, large-cap equity funds, and hybrid mutual funds are considered safe and suitable options for SIP investing.
7.What are the risks included in SIP?
SIP investments are market-linked, hence returns are not guaranteed. However, long-term SIP investing reduces risk due to market fluctuations.
8.Can I stop or pause SIP anytime?
Yes, SIP is flexible. You can pause, modify, or stop your SIP at any time without paying any penalties.
9.How long should I invest in sip?
For better results, SIP should be continued for at least 5–10 years. Longer investment periods offer higher returns due to compounds.
10.Is SIP better than FD?
SIP usually offers higher returns than fixed deposits over the long term and also protects against inflation, whereas FD offers fixed but lower returns.
11.Is SIP taxable in India?
Yes, SIP returns are taxable depending on the type of mutual fund and the holding period, which is an important point to understand while learning what is SIP.
12.Can students invest in SIP?
Yes, students above 18 years with a PAN card and bank account can begin SIP with a small monthly investment amount.
Disclaimer : The information provided in this article is for educational and informational purposes only. It should not be considered as financial, investment, or legal advice. Mutual fund investments are subject to market risks, and past performance does not guarantee future returns.
Before starting a SIP or investing in any mutual fund scheme, readers are advised to carefully read all scheme-related documents and consult a certified financial advisor if required. The author and website will not be responsible for any financial loss arising from decisions taken based on this information.
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