SIP, or Systematic Investment Plan, is one of the most popular ways to invest in mutual funds. Instead of putting in a lump sum, SIP allows you to invest a fixed amount at regular intervals—monthly, quarterly, or even yearly. Over time, this disciplined approach helps you build wealth steadily while reducing the stress of timing the market.
Think of SIP like planting a money tree. You water it regularly with small contributions, and over the years, it grows into something much bigger. The beauty of SIP is that you can begin with as little as Rs. 100 or Rs. 500, making it accessible to almost everyone. As your income grows, you can gradually increase your contributions, creating a solid path toward long-term wealth creation. By committing small amounts regularly, you remove the stress of timing the market and still build wealth consistently over time. Start your SIP journey from only Rs. 100.
In this article, we’ll explore what SIP is, how it works, why it’s considered one of the most effective investment methods, and tips to optimise your SIP strategy.
How does an SIP work?
When you start an SIP, you need to choose:
- A mutual fund scheme
- An investment amount
- The frequency (monthly, quarterly, etc.)
You also set up an auto-debit mandate with your bank, ensuring that the SIP amount is automatically deducted on the chosen date. Every time you invest, you are allotted units of the mutual fund based on the prevailing Net Asset Value (NAV), which is essentially the price per unit.
Over time, as you keep investing regularly, you accumulate more units. The value of these units grows with the market, and thanks to compounding, your returns can multiply significantly. You can easily track the progress online and redeem your investments whenever needed—subject to exit loads and tax rules of the scheme. By automating contributions and letting compounding do the work, SIPs simplify disciplined investing while giving you full flexibility to monitor growth. Track and invest with SIPs online
Why is SIP considered an optimal investment choice?
There are two key reasons behind the popularity of SIP:
1. Power of Compounding
Unlike simple interest, compounding reinvests your earnings, leading to exponential growth. For example, Rs. 100 invested at 10% for 5 years grows to Rs. 150 under simple interest but Rs. 161 with compounding. Extend this over 20 years, and the difference becomes massive. The earlier you start your SIP, the greater the compounding effect.
2. Rupee Cost Averaging
Markets go up and down. With SIP, you buy more units when the market is low and fewer units when it’s high. This averages out your cost per unit over time and shields you from short-term volatility.
Here’s a simple illustration comparing SIP vs lump sum investments over six months:
Month |
NAV |
SIP Investment (Rs.) |
Units Bought |
Lumpsum Investment (Rs.) |
Units Bought |
1 |
15 |
600 |
40 |
3,600 |
240 |
2 |
10 |
600 |
60 |
– |
– |
3 |
12 |
600 |
50 |
– |
– |
4 |
12 |
600 |
50 |
– |
– |
5 |
15 |
600 |
40 |
– |
– |
6 |
10 |
600 |
60 |
– |
– |
Total |
– |
3,600 |
300 |
3,600 |
240 |
Result: SIP accumulated 300 units at Rs. 12 average cost, whereas the lump sum bought only 240 units at Rs. 15 average cost. This shows why SIPs can work better in fluctuating markets.
Since SIPs balance simplicity, compounding, and flexibility, they suit both beginners and experienced investors who want to stay disciplined and steadily grow wealth. Compare mutual fund options now
Why should you choose an SIP?
SIP is one of the simplest ways to start investing. It requires very little effort to set up and can run automatically once you’ve given the mandate. You don’t need to worry about timing the market, tracking daily prices, or making large one-time commitments. This makes it a beginner-friendly option as well as a practical choice for seasoned investors.
The biggest advantage lies in consistency. SIPs help you build the habit of saving and investing regularly, no matter what the market is doing. Over time, this consistency pays off in the form of wealth creation. SIPs also bring flexibility, allowing you to start small, increase or decrease the amount, pause contributions, or even switch to different schemes depending on your goals.
SIPs can also deliver higher returns than traditional fixed-income options such as bank deposits or post office savings because they give you exposure to equities, debt, hybrid funds, or thematic funds. With diversification built in, SIPs make it possible to balance risk and growth while working towards goals like retirement planning, home ownership, or education.
How can you achieve more with SIPs?
While SIP is already effective, making a few smart choices can significantly improve your results. Start by selecting the right mutual fund scheme that matches your financial goals, risk profile, and investment horizon. Analysing past performance, checking the fund manager’s track record, and reviewing expenses such as the expense ratio and exit load can help you choose wisely.
The amount you commit should be realistic and sustainable in the long term. It’s better to invest consistently with a manageable amount than to start big and withdraw early. An SIP calculator can help you estimate how much your investments could grow based on amount, frequency, and expected returns.
The frequency of investment is another important factor. Monthly SIPs often work best for salaried individuals since they align with salary credits, but quarterly or yearly SIPs are also options depending on cash flow. Beyond this, the key is to stay invested for the long term. Exiting prematurely reduces the benefits of compounding and rupee cost averaging. Diversification across funds and asset classes is equally important for spreading risks and improving the chances of better returns.
When to invest in SIP in mutual funds?
The best time to start an SIP is as early as possible. Beginning in your 20s or 30s gives your investments more time to compound, resulting in a much larger corpus by retirement or other long-term goals. Even small contributions started early can grow into significant wealth.
For those starting later in life, SIPs can still help secure a comfortable retirement, pay for children’s education, or meet other financial goals. The key lies in discipline and consistency, even if the time horizon is shorter. Before starting, ensure you have a stable income and emergency fund so that SIP contributions remain uninterrupted.
It also helps to start investing at the beginning of the month. This ensures you set aside your SIP amount before other expenses arise, fostering financial discipline. Special occasions like receiving a bonus or inheritance can also be used to set up or increase SIPs, turning one-time windfalls into long-term wealth.
Top performing funds
When choosing an SIP, performance history often guides investor decisions. Analysing funds across equity, debt, hybrid, and tax-saver categories helps identify those with consistent returns. The table below highlights some of the top-performing mutual funds in India, along with their recent performance and minimum SIP amount.
Scheme Name |
1-Year Return |
3-Year Return |
5-Year Return |
Minimum SIP Amount |
Quant Small Cap Fund |
24.07% |
26.21% |
45.83% |
Rs. 1000 |
Bank of India Small Cap Fund |
31.75% |
23.42% |
36.82% |
Rs. 1000 |
Nippon India Small Cap Fund |
27.54% |
27.61% |
35.58% |
Rs. 100 |
Quant Infrastructure Fund |
27.05% |
23.68% |
35.17% |
Rs. 1000 |
Canara Robeco Small Cap Fund |
24.02% |
21.22% |
33.67% |
Rs. 1000 |
Motilal Oswal Midcap Fund |
53.74% |
35.23% |
33.06% |
Rs. 500 |
Edelweiss Small Cap Fund |
26.05% |
22.74% |
32.82% |
Rs. 100 |
Invesco India Smallcap Fund |
37.39% |
26.47% |
32.09% |
Rs. 500 |
Tata Small Cap Fund |
31.74% |
24.94% |
32.08% |
Rs. 100 |
Quant Mid Cap Fund |
20.21% |
23.72% |
32.02% |
Rs. 1000 |
Data as of 24-December-2024
These returns show how small cap and mid cap funds have outperformed in recent years, but investors must consider their own risk appetite before selecting a fund.
How to make SIP investment on Bajaj Finserv
Starting an SIP through Bajaj Finserv is designed to be simple and digital. Investors can begin with just Rs. 100 per month and choose from a wide range of schemes across categories. Here is the step-by-step process:
- Complete KYC: Investors need to ensure their Know Your Customer (KYC) details are updated. This can be done online by submitting PAN, address proof, and a recent photograph.
- Register on the platform: Sign up on the Bajaj Finserv Mutual Fund Platform with an email ID and mobile number. Once registered, you can explore over 1,000 mutual fund schemes.
- Choose your fund: Use the available research tools to compare funds based on returns, risk profile, and fund manager expertise. Select a scheme that matches your goals.
- Set SIP details: Decide the investment amount, frequency (monthly or quarterly), and the preferred date for auto-debit.
- Create auto-debit mandate: Set up an OTM (One Time Mandate) with your bank. This ensures the SIP amount is automatically deducted on the chosen date without manual intervention.
Things to keep in mind for SIPs
While SIPs are convenient and effective, there are a few points to remember before starting one.
- Returns are market-linked: SIPs do not guarantee fixed returns. Their performance depends on the underlying scheme, which is subject to market risks.
- Regular review is necessary: SIPs should not be treated as a set-and-forget option. Reviewing performance periodically ensures your investments remain aligned with your goals.
- Not a substitute for planning: SIP is part of a larger financial plan, not a replacement for one. Investors should have an emergency fund, insurance cover, and debt management plan in place before starting SIPs.
- Stay invested long term: Withdrawing frequently can reduce the benefits of compounding and averaging. Staying invested until financial goals are met ensures optimal results.
Key takeaways
- SIP offers the benefit of compounding, where reinvested earnings help your money grow faster over time.
- Through rupee cost averaging, SIP ensures you buy more units when prices are low and fewer when prices are high, lowering overall cost.
- It is flexible, allowing investors to adjust the amount, duration, or scheme as needed.
- Staying invested for the long term helps reduce the effect of short-term market volatility and improves the chances of achieving financial goals.
- While SIP offers potential for higher returns compared to traditional fixed-income options, it should be aligned with an overall financial plan.
Conclusion
A Systematic Investment Plan is more than just a tool for disciplined investing — it is a structured way to achieve financial security. By committing small but consistent amounts, investors can build substantial wealth over time. SIP combines convenience, affordability, and the potential for high returns, making it suitable for investors across income levels and goals.
However, the key to maximising returns lies in making informed choices — from selecting the right scheme and amount to staying invested through market cycles. With regular monitoring and patience, SIP becomes an effective strategy for creating wealth and meeting long-term objectives such as retirement planning, children’s education, or buying a home.
