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?

A Systematic Investment Plan (SIP) is a method of investing in mutual funds. 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?

Initiating your SIP investment is a straightforward process that puts you in the driver's seat of your financial journey. 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.

A Step-by-Step Guide

  • Choose Your Investment Amount: Decide the fixed amount you're comfortable investing at regular intervals—whether monthly or quarterly.

  • Select Your Mutual Fund: Explore and choose a mutual fund that aligns with your financial goals and risk tolerance. This decision may involve considering factors such as fund performance, the reputation of the fund house, and the expertise of the fund manager.

  • Set the Frequency: Determine the frequency of your contributions—monthly or quarterly—based on your financial plan and budget.

  • Automate Your Investments: Opt for the convenience of automation by allowing the investment amount to be automatically deducted from your bank account. This not only ensures consistency but also eliminates the need for manual interventions.

  • Monitor and Adjust: Regularly monitor the performance of your SIP and, if needed, adjust your investment amount or frequency based on changes in your financial circumstances or goals.

  • Seamless Investment Management: 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 timing considerations.

    Whether you're a novice investor or someone looking to streamline their investment approach, this guide ensures that investing in SIP is not just an opportunity but a journey well within your control.

    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 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 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 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

    Embarking on your SIP investment journey is a significant step toward financial empowerment. This section serves as your comprehensive guide, offering a detailed roadmap to initiate SIP investments with confidence. From understanding your risk appetite to navigating the nuances of choosing the right investment amount, this guide ensures that your first steps into the world of SIP are secure and well-informed.

    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.

    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. It is a disciplined approach to investing that can help investors achieve their long-term financial goals. By investing small amounts of money regularly, investors can take advantage of the power of compounding and build wealth over time. However, investors must choose the right mutual fund and SIP investment that aligns with their financial goals and risk appetite. It is important to conduct thorough research before selecting a SIP plan.

    One of the key factors to consider when selecting a SIP plan is the track record of the fund house and the fund manager. A good track record is an indicator of consistent performance and good management of funds. Investors should also consider the expense ratio, which is the fee charged by the mutual fund company for managing the investments. It is advisable to opt for SIP plans with a lower expense ratio as it can significantly impact the returns on investment in the long run.

    Another important factor to consider is the investment horizon. Investors should choose a SIP plan that aligns with their investment horizon. For instance, if an investor has a short-term investment horizon, they should opt for a SIP plan that invests in debt funds or liquid funds. On the other hand, if the investment horizon is long-term, investors can opt for equity funds or balanced funds.

    Investors should also consider their risk appetite when selecting a SIP plan. Equity funds are generally riskier than debt funds or liquid funds. Therefore, investors with a low-risk appetite should opt for debt funds or liquid funds. On the other hand, investors with a high-risk appetite can opt for equity funds.

    Finally, investors should select a SIP plan that is in line with their financial goals. For instance, if an investor's financial goal is to save for their child's education, they can opt for a SIP plan that invests in a child education fund. Similarly, if the financial goal is to save for retirement, investors can opt for a SIP plan that invests in a retirement fund.

    In addition to the aforementioned factors, seeking professional guidance can also be a smart move for investors looking to make informed investment decisions. Reputable financial advisory firms like Wright Research offer cutting-edge financial technology and data science expertise to help investors achieve their financial goals. With the help of such experts, investors can stay on top of the latest financial trends and technologies to ensure a secure financial future. Wright Research can provide custom portfolio bundles designed to meet an investor's unique financial goals, backed by robust data science. By leveraging the insights and guidance of financial advisors, investors can optimize their SIP investments to achieve unbeatable returns and grow their wealth over time.

    In conclusion, SIP in mutual funds is an effective investment tool that allows investors to invest in mutual funds in a disciplined manner. It helps investors to achieve their financial goals by investing small amounts regularly. While selecting a SIP plan, investors should consider factors such as the track record of the fund house and fund manager, expense ratio, investment horizon, risk appetite, and financial goals. With the right SIP plan and a long-term investment horizon, investors can create wealth and achieve their financial goals.

    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?

    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.

    1. Is SIP a good investment?

    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.

    1. What is the risk of 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.

    1. Is SIP 100% safe?

    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.

    1. 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.

    1. 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).

    1. Is SIP return guaranteed?

    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.

    1. 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.

    1. 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.

    1. How many years is good for SIP?

    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.

    1. Will I get a loss in SIP?

    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.

    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