What is SIP in Mutual Funds? An Experts Guide

by Alina Khan

Published On May 5, 2023

In this article

Do you want to start investing in mutual funds but feel overwhelmed by the jargon and complexity? If yes, you're not alone. One of the most effective and easy-to-use investment tools is SIP in mutual funds, and it's essential to know about it before you begin investing. SIP or Systematic Investment Plan is a method of investing in mutual funds that can help you achieve your financial goals over the long term. So, buckle up and read on as we demystify what is SIP in mutual funds, how it works, and the benefits it offers. We'll also explore how you can choose the best SIP to invest in and take your first step towards financial freedom.

What Is SIP in Mutual Funds?

Embarking on the exciting journey of mutual fund investments may seem like navigating uncharted waters, but fear not— Systematic Investment Plan (SIP) is your beacon of clarity. SIP serves as an expert guide, simplifying the investment process and empowering investors to navigate the complexities with ease. In this section, we delve into the essence of SIP, demystifying its intricacies, and highlighting its transformative role in helping investors achieve long-term financial goals.

Understanding SIP For Mutual Funds

Mutual fund investments often come with a perceived complexity, deterring potential investors. SIP acts as a bridge, making the process more approachable and less intimidating. It's not just an investment method; it's a strategic approach that allows investors to contribute regularly, overcoming the challenges posed by market volatility and uncertainties.

Long-Term Financial Empowerment

At its core, SIP is a method designed to empower investors in their pursuit of long-term financial goals. Whether you're saving for education, a dream home, or retirement, SIP provides a structured and disciplined way to build wealth over time. By contributing smaller amounts at regular intervals, investors sidestep the need for substantial upfront investments, making financial planning more inclusive and achievable.

How Does SIP in Mutual Fund Work?

We have understood what is SIP in mutual funds now let's look at how SIP in mutual funds work. Under an SIP, an investor can invest a fixed amount of money regularly, such as monthly or quarterly, in a mutual fund of their choice. The investment amount is automatically deducted from the investor's bank account and invested in the chosen mutual fund.

The key advantage of an SIP in a mutual fund is that it enables investors to invest small amounts of money regularly, which can lead to significant long-term wealth creation. Additionally, SIP investments can help investors achieve financial discipline, as they need not worry about timing the market or making lump-sum investments.

How to Invest in SIP Mutual Funds?

Investing through a Systematic Investment Plan (SIP) in mutual funds is a popular and disciplined approach to wealth creation. This section serves as your comprehensive guide, breaking down the steps to kickstart your SIP investment and ensuring a seamless experience from start to finish. Here’s how you can start investing in SIP mutual funds:

A Step-by-Step Guide to Investing in SIP Mutual Funds

        • Choose Your Investment Amount: Decide the amount you wish to invest at regular intervals. This could be as low as ₹500 per month, making it an accessible investment option for beginners. Consider your financial goals, liabilities, and cash flow before deciding on the amount.
        • Select Your Mutual Fund Scheme: Research and select a mutual fund house & scheme that aligns with your investment goals, risk appetite, and investment horizon. Factors to consider include the fund's past performance, the asset management company's reputation, expense ratio, and the fund manager's expertise.
        • Complete KYC Procedures: To invest in mutual funds, you must comply with the Know Your Customer (KYC) norms. This involves submitting identification documents such as PAN card, Aadhaar card, and recent passport-sized photographs. KYC can be completed digitally through platforms linked with KRA (KYC Registration Agency).
        • Set the Frequency of Investment: Decide whether you want to invest monthly, quarterly, or at any other regular interval. Align this with your income cycle and financial commitments.

              • Automate Your Investments: Register for an auto-debit facility with your bank to automate the SIP deductions. This ensures that the investment amount is automatically debited from your linked bank account on a specified date, which helps in maintaining discipline in investing.

                  • Monitor and Adjust: Regularly review the performance of your SIP investments. Many mutual fund companies and third-party platforms provide dashboards for tracking your investment's growth. If your financial goals or circumstances change, consider adjusting the investment amount or the frequency.

                      • Tax Implications: Be aware of the tax implications on your returns from SIPs in mutual funds. Equity funds are subject to capital gains tax, with gains on units held for over a year being taxed at 10% (without indexation) for gains exceeding ₹1 lakh. Debt fund gains are taxed as per the income tax slab if held for less than three years and at 20% with indexation if held for more than three years.

                          • Plan for Long-Term Goals: SIPs are ideal for long-term goals such as retirement planning, buying a home, or funding higher education. The longer the investment horizon, the more significant the potential for returns due to compounding. SIP investing is designed to be user-friendly and accessible. By automating the process, investors can focus on their financial goals without the burden of constant market monitoring or market timing considerations.

                          Benefits of SIP in Mutual Fund

                          SIP (Systematic Investment Plan) in mutual funds is more than just a convenient and disciplined way to invest your money. It offers a host of benefits that can help you achieve your financial goals and secure your future. From the power of compounding to mitigating market volatility, SIP has something to offer for every investor. Let’s take a look at some of the exciting benefits of investing in SIP mutual funds.

                          Disciplined Investing:

                          SIP in mutual funds helps investors to invest regularly and systematically, which can help them achieve their long-term financial goals.

                          Rupee Cost Averaging:

                          SIP helps investors average the purchase cost of mutual fund units. This means that when the market is high, investors buy fewer units, and when the market is low, they buy more units, leading to an average purchase price of units.

                          Power of Compounding:

                          Investing regularly through SIP can help investors take advantage of the power of compounding, which can result in significant long-term wealth creation.


                          Investors can choose the amount they want to invest in SIP and also change the amount or frequency of investment as per their convenience.


                          Investors can choose to invest in different mutual funds through SIP, which helps them diversify their portfolio and reduce risk.

                          Tax Benefits of SIP Investment

                          Unlocking the full potential of Systematic Investment Plan (SIP) goes beyond financial growth—it extends to offering distinct tax advantages. In this segment, we delve into the intricacies of the tax benefits associated with SIP investments within the Indian regulatory landscape. Understanding these tax implications is not just prudent but pivotal for optimizing returns and ensuring a tax-efficient wealth creation journey.

                          Get Direct Mutual Fund Recommendations from experts. Rebalancing every 6 months for just ₹6 per day!
                          Explore Now

                          Tax Benefits of SIP Investment

                          Deductions Under Section 80C

                          One of the primary tax benefits of SIP investments lies in the realm of deductions under Section 80C of the Income Tax Act. Investors can claim deductions of up to ₹1.5 lakh annually for investments made in specified financial instruments, including Equity-Linked Savings Schemes (ELSS) offered through SIPs. ELSS not only provides tax benefits but also offers the potential for equity-related returns.

                          Capital Gains Tax

                          As your SIP investment grows, it's crucial to navigate the landscape of capital gains tax. The capital gains accrued from SIPs are categorized into short-term and long-term gains, each with its tax implications.

                          • Short-Term Capital Gains (STCG): For equity-oriented funds with a holding period of less than one year, STCG is taxed at a flat rate of 15%.

                          • Long-Term Capital Gains (LTCG): For equity funds with a holding period exceeding one year, LTCG is currently tax-free up to ₹1 lakh. Any gains above this threshold are taxed at 10%.

                          For debt-oriented funds, the taxation of capital gains differs. Short-term gains are taxed as per the individual's income tax slab, while long-term gains are taxed at 20% post indexation.

                          Making Informed Decisions

                          Ensuring Tax-Efficient Wealth Creation

                          The key to tax-efficient wealth creation through SIP lies in making informed decisions aligned with your financial goals. By strategically selecting SIPs that offer deductions under Section 80C and understanding the nuances of capital gains tax, investors can optimize their tax liabilities and enhance overall returns.

                          Continuous Monitoring and Adaptation

                          Tax laws are dynamic, and as an investor, staying informed about any changes is crucial. Regularly monitoring your SIP portfolio and adapting your investment strategy in response to evolving tax regulations ensures that you remain on the forefront of tax efficiency.

                          Choosing the Best Mutual Fund for SIP

                          Selecting the right mutual fund for your SIP is akin to navigating a complex terrain where each decision shapes the trajectory of your investment journey. This section serves as your compass, guiding you through the considerations that define the best SIP investments and align with your financial objectives.

                          Evaluating Fund Performance

                          One of the foundational considerations in choosing the best mutual fund for your SIP is evaluating its performance. Look beyond recent gains; delve into the fund's track record over different periods. Assess how it has performed in various market conditions, scrutinize its consistency, and understand its returns compared to benchmarks and peer groups.

                          Assessing the Fund Manager's Track Record

                          Behind every successful mutual fund is a skilled fund manager. Scrutinize the track record of the fund manager associated with the mutual fund you're considering. An experienced and competent fund manager can play a pivotal role in navigating market complexities and steering the fund toward sustained success.

                          Reputation of the Fund House

                          The reputation of the mutual fund house is an often-overlooked yet critical factor. Opt for a fund house with a strong reputation for transparency, ethical practices, and a history of robust financial management. A reputable fund house instills confidence in investors and serves as a pillar of trust in the often intricate world of mutual fund investments.

                          Aligning with Investment Objectives

                          The best SIP for you is the one that aligns seamlessly with your investment objectives and risk tolerance. Assess your financial goals, time horizon, and risk appetite before selecting a mutual fund. Whether you're aiming for wealth creation, income generation, or a balanced approach, choose a fund that mirrors your aspirations.

                          Expense Ratio Dilemma

                          The expense ratio of a mutual fund directly impacts your returns. A lower expense ratio implies that a smaller portion of your returns goes toward covering fund management expenses. Consider this factor when selecting the best mutual fund for your SIP to ensure that your returns remain optimized.

                          Which is the Best Mutual Fund SIP to Invest In?

                          Choosing the best SIP to invest in can be a tricky task, as there are many mutual funds and investment options available in the market. Here are a few things to consider when choosing the best SIP to invest in:

                          Fund Performance:

                          The performance of the mutual fund is an essential factor to consider when choosing the best SIP to invest in. Investors should look at the fund's track record, its returns over different periods, and its performance compared to its benchmark and peer group.

                          Fund Manager:

                          The fund manager plays a crucial role in the success of a mutual fund. Investors should look for a fund managed by an experienced and competent fund manager who has a good track record.

                          Fund House Reputation:

                          The reputation of the mutual fund house is an important factor to consider when choosing the best SIP to invest in. Investors should look for a fund house that has a good reputation, is transparent, and follows ethical practices.

                          Investment Objective:

                          The investment objective of the mutual fund should match the investor's financial goals and risk appetite.

                          Expense Ratio:

                          The expense ratio of the mutual fund is an important factor to consider, as it directly impacts the returns earned by the investor. Investors should choose a mutual fund with a low expense ratio.

                          How to Start SIP Investment in Mutual Funds

                          Starting your SIP investment journey is a crucial step towards financial empowerment. This section provides a clear roadmap to confidently begin investing in SIPs.

                          • Assessing Your Risk Appetite: Before investing, determine your risk tolerance based on age, financial goals, and personal circumstances. Conservative investors may prefer debt-oriented funds, while those with higher risk tolerance might opt for equity-oriented funds. Understanding your risk level is crucial for choosing suitable SIP investments.
                          • Choosing the Investment Amount: Select an investment amount that fits your budget and goals. SIPs offer the flexibility to start small and adjust as your financial capacity grows, ensuring a sustainable investment approach.
                          • Automating Your SIP Investments: Set up auto-debit from your bank account to automate your SIP investments. This ensures regular contributions without manual intervention, promoting financial discipline.
                          • Monitoring and Adjusting: Regularly review your SIP investment’s performance. Adjust your strategy as needed to align with changing life circumstances, market conditions, and financial goals.

                          Assessing Your Risk Appetite

                          Before diving into SIP investments, it's crucial to assess your risk appetite. Your risk appetite defines the level of uncertainty you are comfortable with regarding potential returns and losses. Factors such as age, financial goals, and personal circumstances play a role in determining your risk tolerance. Conservative investors may lean towards debt-oriented funds, while those comfortable with higher risk might opt for equity-oriented funds. Understanding your risk appetite sets the foundation for selecting the most suitable SIP investments aligned with your comfort level.

                          Understand your risk profile by answering 5 simple questions.

                          Choosing the Investment Amount

                          Selecting the right investment amount is a key decision that aligns with your financial capabilities and goals. SIPs offer flexibility, allowing you to start with an amount that suits your budget. Whether it's a modest sum or a more substantial contribution, the beauty of SIP lies in its adaptability. Begin with an amount that you can comfortably commit to consistently, ensuring a disciplined and sustainable investment journey.

                          Exploring SIP Flexibility

                          SIPs offer a level of flexibility that caters to the dynamic nature of personal finances. This flexibility extends to both the investment amount and the frequency of contributions. As your financial situation evolves, SIPs allow you to increase or decrease your investment amount and adjust the frequency of contributions. This adaptability ensures that your SIP investment remains in harmony with your changing financial landscape.

                          Automating Your SIP Investments

                          One of the most convenient features of SIP is its automation. By setting up automatic deductions from your bank account, you eliminate the need for manual interventions. This not only ensures consistency but also removes the burden of remembering to make periodic investments. Automation fosters financial discipline, a key element in the success of SIP investments.

                          Monitoring and Adjusting

                          Initiating your SIP investment is just the beginning. Regular monitoring is essential to ensure that your investment aligns with your goals. Keep an eye on the performance of your chosen mutual fund and be proactive in adjusting your investment strategy if needed. Life circumstances, market conditions, and financial goals may evolve, and your SIP investment strategy should evolve with them.


                          SIP in mutual fund investments is a popular and convenient way to invest in mutual funds , promoting a disciplined approach to achieving long-term financial goals. By investing small amounts regularly, investors can harness the power of compounding and build wealth over time. It's crucial to choose the right mutual fund house and SIP investment that aligns with one's financial goals and risk appetite, conducting thorough research before selecting a plan. Factors such as the track record of the mutual fund house and fund manager, the expense ratio, and the investment horizon are essential considerations.

                          Investors should also align their SIP plan with their risk appetite and financial goals, whether short-term or long-term. For instance, those with a low-risk appetite might prefer debt or liquid funds, while those with a higher risk tolerance could opt for equity funds. Additionally, professional guidance from financial advisors can be beneficial. Firms like Wright Research offer expertise in financial technology and data science, helping investors make informed decisions and optimize their SIP investments for better returns. With the right SIP plan and a long-term perspective, investors can effectively create wealth and achieve their financial goals.

                          Read these articles to learn about key investment methodologies and concepts related to SIPs & Investment Advisors that can help you setup your portfolio:

                            1. SIP Investment Guide: What is SIP, How to Start, Benefits, & Is It Worth It
                            2. Navigating the Challenge: How to Deal with Loss-Making SIPs
                            3. Maximizing Portfolio Potential: The Role of an Investment Advisor
                            4. Best SIP to Invest In Now for Maximum Returns: A Strategic Guide for Indian Investors
                            5. SIP vs STP: Understanding Key Differences and Strategies
                            6. Comprehensive Guide on Starting & Stopping SIPs: What are Perpetual SIPs in India?
                            7. SIP vs. Lumpsum Investment Strategies: Comprehensive Guide for Best Returns
                            8. How to Cancel a Mutual Fund SIP?
                            9. How to Invest in US Stocks from India?

                            Get Direct Mutual Fund Recommendations from experts. Rebalancing every 6 months for just ₹6 per day!
                            Explore Now


                            1. Which is better SIP or mutual fund?Is SIP a good investment?How many years is good for SIP?

                            SIP (Systematic Investment Plan) is a method of investing in mutual funds. They are not mutually exclusive; rather, SIP is a way to invest in mutual funds. Mutual funds represent a broader investment category that includes various modes of investment, and SIP is one such method. SIP can be a good investment strategy, especially for long-term goals. It allows investors to regularly invest small amounts, benefit from rupee cost averaging, and potentially capitalize on market fluctuations.

                            The ideal duration for SIP depends on individual financial goals. Generally, a longer investment horizon, such as 5-10 years or more, is considered suitable for SIP to potentially maximize returns and mitigate short-term market fluctuations.

                            2. What is the risk of SIP?Is SIP return guaranteed?Will I get a loss in SIP?

                            SIP, like any investment, carries market risk. The value of investments can fluctuate based on market conditions. However, investing regularly through SIP helps mitigate the impact of market volatility over time.

                            SIP is not entirely risk-free as it involves market-linked investments. However, its structured and disciplined approach reduces the impact of short-term market fluctuations and aims for long-term wealth creation. No, SIP returns are not guaranteed. They are subject to market fluctuations, and the performance of the mutual fund will depend on various factors such as market conditions and the fund manager's decisions.

                            SIP investments are subject to market risks, and there is a possibility of losses, especially in the short term. However, the rupee cost averaging feature of SIP helps smooth out the impact of market volatility over time.

                            3. Can I withdraw SIP anytime?

                            Yes, you can withdraw from your SIP investments at any time. However, it's advisable to consider a longer investment horizon to benefit from compounding and potentially higher returns.

                            4. Is SIP tax-free?

                            SIP investments are not entirely tax-free. Returns from SIP investments are subject to capital gains tax, depending on factors such as the holding period and the type of mutual fund (equity or debt).

                              5. Is SIP safe for long term?

                              SIP is considered a relatively safe and effective strategy for the long term. Its structure helps investors navigate market volatility, and over an extended period, it has the potential to offer compounded returns.

                              6. Can I stop my SIP and stay invested?

                              Yes, you can stop your SIP at any time. However, it's often recommended to stay invested for the long term to benefit from the compounding effect and potential market upswings.

                              Our Investment Philosophy

                              Learn how we choose the right asset mix for your risk profile across all market conditions.

                              Subscribe to our Newsletter

                              Get weekly market insights and facts right in your inbox