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SIP: Definition & How to Start One

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May 16, 2023


What’s Inside

Are you new to the world of investments and wondering what a SIP is and how to start a SIP investment? 

When I was young, I liked putting my savings in a piggy bank. As I grew up, I sought an investment similar to my piggy bank exercise. I was looking for an investment that would help me invest in small bits according to my comfort. And I could do that with mutual funds. 

Mutual funds helped me invest in smaller but regular installments through Systematic Investment Plans (SIPs). 

When it comes to investing, regularly making relatively small, measured investments can be more convenient than significant lump sum investments sporadically. 

Let’s understand SIP investments and how you can start investing in them. 

What is SIP investing?

There are two ways in which you can invest in mutual funds:

  • One is a lump sum, where you can invest a bigger one-time amount. 
  • Another is SIP, which enables you to regularise your investments with a monthly date and amount. 

In SIP, you issue a mandate with the bank to deduct small amounts regularly from your account and automatically invest in your scheme at a predefined frequency. The frequency may be daily, weekly, monthly or annually. Monthly SIP is a popular SIP since it is easier to match it with your salary date and manage monthly expenses.

Next, let’s understand how to start a SIP investment. 

How to start an SIP?

We humans are a rational species. Everything we do has a reason, let alone our investments. Therefore, to start a SIP, you can first decide its purpose. What are these purposes? These purposes are your goals.

Mutual fund investments are effective ways to invest for your financial goals regularly. You can divide these goals into short-term, medium-term and long-term. 

Short-term goals

Goals like renovating your house and going on a short family vacation are short-term financial goals. These are goals with a horizon of one to three years. 

Medium-term goals

Goals like reducing a home-loan debt burden, buying a new car, going on an international vacation with family, and accumulating wealth for your kid’s higher education are medium-term financial goals. These goals have a horizon of three to five years. 

Long-term goals

Goals like retirement planning and accumulating wealth to start your own business are long-term financial goals. These goals have a horizon of more than five years. 

Now that you know your goal horizons, you can start an SIP for them. 

You can start investing for your financial goals by setting up a SIP amount and date. For short-term goals, you can invest in low-risk funds, such as debt-based mutual funds. Since your risk-taking capacity increases with your goal horizon, you can invest in funds with a mix of debt and equity or even index funds for your medium-term goals. The longer your goal horizon, the more can be your risk appetite. 

Lastly, you can invest in equity-based mutual funds for your long-term goals. These funds have a high-risk profile and, therefore, are better suited for long-term goals. Investing in a SIP can help you turn market volatility in your favour. Let’s understand the reason behind it.

Why invest in SIP?

  • The rise and fall of stocks in the market are mainly based on investor sentiments. Therefore, when these investors are optimistic about their stock investments, they buy more stocks. It increases the stock price, and the market moves upward. 
  • Similarly, when the investors think their investment value might decline, they sell their shares, thus bringing down the share price. Therefore, markets tend to be dynamic and volatile, not static and steady. They tend to have their cycles of growth, slowdown, booms, and busts. 
  • Let's understand how market volatility can affect big lump sum investments and regular, small investments differently. For instance, you have saved a large amount of money over time and wish to invest in an equity-based mutual fund. Now, equity-based mutual funds invest predominantly in equities. Let's say you invested it all together in an equity-based mutual fund as a lump sum.
  • Your investment may go up or down over time, depending on the market situation. As it turns out, the risk of market volatility impacting the performance of your investments is larger when you invest it as a lump sum. 
  • If the markets go down after you have made your lump sum investment, you stand to lose that much on your entire investment, which was a large amount to begin with. In this case, unfortunately, market volatility works against you. However, when you invest in small, equal parts regularly, let’s say every month, you have market volatility. 

How is that possible? 

This is possible through rupee cost averaging.

What is rupee cost averaging, and how does it help?

Even if the market goes down after making your first small investment in the first month, you can use this market volatility to your advantage. 

Let's understand this with an example.

You invested ₹5000 in an equity mutual fund monthly through SIP. Since the Net Asset Value (NAV) of a mutual fund is ₹50, you bought around 100 units of the fund for the first month. The cost per unit of a mutual fund is its NAV. 

If the market goes down the next month, the NAV of your fund will decrease. Your cost per unit now is, say, ₹40 per unit. You can now buy more. You can buy around 125 units of the fund with the same SIP amount. 

However, if you had invested as a lump sum, you might not have this chance to average the rupee cost of your investments by investing at regular intervals. 

If the market goes up the next month, you will be able to buy fewer units. However, the larger number of units you purchased last month would already have appreciated, and the higher NAV now can be averaged against the earlier lower NAV.

This spreading of the risk and rewards over regular time intervals while investing is called rupee cost averaging. 


If you wish to reach your financial goals with investments in small and manageable installments, then starting a SIP is something you need to check out. Whether your goals are long-term, medium-term or short-term, some investments can match them in mutual funds. Apart from your goal horizon, you can consider your risk appetite for investing in mutual funds. 

Let epiFi Be Your Guide For Mutual Fund Investments 

Mutual Fund investments on Fi are simple & commission-free. With its intuitive user interface, suited for new & seasoned investors, one can select from over 900 direct Mutual Funds. Plus, Fi is 100% secure as it functions under the guidance of epiFi Wealth, a SEBI-registered investment advisor. To help simplify the steps involved, you can invest daily, weekly, or monthly via automatic payments or SIPs — created with one tap. Moreover, Fi offers 100% flexibility with zero penalties for missed payments.

Frequently Asked Questions

1. Which is the best SIP for beginners?

Beginners might get confused by the financial jargon and operational steps required for opening a regular SIP with a mutual fund house or a stockbroker. 

On the Fi app, SIPs are automated based on your habits. You can set up FIT Rules that help you invest in a mutual fund automatically, when you shop online or order food and so on.

2. Are SIPs better than an FD?

SIP is similar to an RD (Recurring Deposit) where you invest a fixed amount regularly. Like an RD, SIP averages risks and returns over time, making it suitable for earning stable long-term returns, according to investment experts.

3. Where to start a SIP investment?

Starting a SIP investment in a mutual fund is similar to starting an RD in a bank. In this case, you issue a mandate to the fund house to debit your account and invest in the fund at regular, pre-defined intervals. In the case of a stock investment SIP, you need to issue a similar mandate to your stock broker.

On Fi Money, you can invest in mutual funds based on your lifestyle. This is through something called FIT Rules that automatically invest for you each time you shop online or order food, or it can even invest for you daily, weekly, or monthly.

4. What is the interest rate offered by SIP Investments?

The indicative rate offered by the SIP investment can differ based on the type of mutual fund you select.

Debt-based mutual funds can offer you stability, while equity-based mutual funds can help you beat inflation in the long run.


Investment and securities are subject to market risks. Please read all the related documents carefully before investing. The contents of this article are for informational purposes only, and not to be taken as a recommendation to buy or sell securities, mutual funds, or any other financial products.
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