Saving money is important. But do you know you can make your money grow too? You don’t need to be a big person or know a lot about the stock market. There is an easy way to grow your money – it is called a Systematic Investment Plan (SIP). Let’s learn what it is and how you can start it.

What is a Systematic Investment Plan (SIP)?

A Systematic Investment Plan (SIP) is a way of investing in mutual funds through fixed, regular installments over time. Rather than making a large lump sum investment, SIPs allow you to invest a small amount periodically (monthly, quarterly, etc.) in a mutual fund of your choice.

The amount you invest in SIPs is automatically deducted from your bank account on a set date and invested into the selected mutual fund scheme. This helps you start investing without worrying about market timing or big upfront investments.

Key Features of SIPs:

• Fixed Contributions: You choose a fixed amount to invest regularly (e.g., ₹500, ₹1000, ₹5000).

• Regular Investments: SIPs happen at regular intervals, typically every month.

• Automatic Deductions: The money is automatically deducted from your bank account and invested in your chosen mutual fund.

• Compounding Benefit: SIPs leverage compounding, meaning you earn returns not just on your initial investment but also on the returns your investment generates over time.

How SIPs Work?

SIPs work by helping you invest small, affordable amounts regularly. Here’s a step-by-step breakdown of how SIPs work:

1. Choose Your Fund:

   You start by selecting a mutual fund scheme. Mutual funds are generally categorized into equity, debt, or hybrid funds. You need to choose the one that fits your financial goals and risk tolerance. For example:

   • Equity Funds: Higher risk, potential for higher returns.

   • Debt Funds: Lower risk, stable returns.

   • Hybrid Funds: A mix of equity and debt for balanced returns.

2. Decide the SIP Amount:

   Choose the amount you are comfortable with. This can be as low as ₹500 per month. SIPs are flexible, and you can increase or decrease the amount as per your convenience.

3. Set the Frequency:

   Typically, you can choose monthly or quarterly SIPs. Monthly SIPs are the most common, where an amount is automatically deducted from your account every month.

4. The Investment Process:

   Once you’ve set up your SIP, the chosen amount is debited from your bank account and invested in the mutual fund scheme. You get units of the mutual fund based on the Net Asset Value (NAV) of the fund on the day your SIP is processed.

5. Growth Over Time:

   Over time, your SIP investment grows through compounding. The returns earned by your investment are reinvested, and you can potentially see higher growth in the long term.

Why SIPs Are Popular Among Investors?

SIPs offer several benefits that make them popular with both new and seasoned investors:

1. Disciplined Investing:

   SIPs encourage regular investing, even if the amount is small. By automating the process, you create a disciplined habit of investing, which is crucial for long-term wealth creation.

2. Rupee Cost Averaging:

   SIPs help you take advantage of rupee cost averaging. Since the market fluctuates, you buy more units when the market is low and fewer units when the market is high. Over time, this strategy helps reduce the average cost of your investment, helping you avoid the risks of trying to time the market.

3. Affordable Investment:

   You don’t need a large amount of money to start. SIPs allow you to begin with as little as ₹500 per month, making investing accessible to almost everyone.

4. Power of Compounding:

   SIPs let you earn returns on your investment and the returns themselves, thanks to compounding. The earlier you start investing, the more your money grows over time.

5. Diversification:

   Mutual funds are diversified investments, meaning that your SIP investments are spread across a range of securities. This helps reduce the risk of losses from any single investment.

6. Flexibility:

   You can adjust the SIP amount, switch funds, or stop investing at any time. This flexibility makes SIPs a popular choice for people who want to control their investments.

How to Start an SIP?

Starting an SIP is a simple process. Here’s how you can begin:

1. Choose a Mutual Fund:

   First, research and choose a mutual fund that aligns with your financial goals. You can consult with a financial advisor or use online tools to help you find the best mutual funds for SIPs. Some of the popular platforms to invest in mutual funds are Motilal Oswal

2. KYC (Know Your Customer):

   To invest in mutual funds, you need to complete a KYC process. You can do this online by submitting your PAN card, address proof, and photograph.

3. Select SIP Amount and Frequency:

   Once you’ve completed KYC, decide how much you want to invest and how often (monthly or quarterly). You can start with ₹500 and increase the amount later as your income grows.

4. Provide Bank Details:

   You will need to link your bank account for automatic SIP deductions. Ensure that you have sufficient funds in your account to avoid missed payments.

5. Start SIP:

   After providing all the details, confirm your SIP. The first deduction will happen on the date you choose, and subsequent deductions will be made automatically each month.

Example of SIP

Let’s understand SIP with a simple example:

• Investment Amount: ₹1,000 per month

• Investment Duration: 12 months

• Expected Annual Return: 12%

If you invest ₹1,000 every month for a year, you will have invested ₹12,000 by the end of the year. However, if the mutual fund earns an annual return of 12%, the value of your SIP investment will grow to ₹13,114 by the end of the year, which is ₹1,114 more than your original investment.

The power of compounding means that the returns you earn are reinvested and begin earning returns of their own, which can lead to higher growth over time.

Advantages of SIPs

Systematic Investment Plans (SIPs) are an easy, effective, and disciplined way to invest in mutual funds. They offer several benefits such as low risk, steady growth, and the power of compounding. By starting an SIP early, even with small amounts, you can build wealth over time and achieve your long-term financial goals.

So, whether you're looking to save for a big purchase, your child's education, or retirement, starting an SIP is a great way to grow your wealth steadily. The best part? You don't have to be an expert in the stock market to get started. SIPs do the work for you by making investing simple and automated.

Also read: Best SIP plans for 2025 you shouldn’t miss | How to start investing in SIP? - Beginner’s guide |Top SIP investment plans for a 3-year goal

Frequently Asked Questions (FAQs) on Systematic Investment Plans (SIPs)