Systematic Investment Plan (SIP)
A SIP is an investment facility offered by mutual fund AMCs that allows individuals to invest a predetermined fixed amount in a selected scheme at regular intervals — typically monthly.
Rupee Cost Averaging
A core feature of SIP investing is rupee cost averaging. Since a fixed amount is invested regardless of market levels, more units are purchased when the NAV is lower and fewer when the NAV is higher. Over time, this can result in a lower average cost per unit compared to investing the same total amount in a single transaction at a peak.
| Month | NAV (₹) | Units Purchased (₹5,000 SIP) |
|---|---|---|
| Jan | 50 | 100 |
| Feb | 40 | 125 |
| Mar | 45 | 111.1 |
| Average cost | ₹44.6 | 336.1 units |
How Returns Are Measured
The return on a SIP is typically measured using XIRR (Extended Internal Rate of Return), which accounts for the timing of each cash flow. CAGR is not accurate for SIP performance since each instalment has a different investment horizon.
Minimum Investment
Most AMCs in India allow SIPs starting from ₹100 to ₹500 per month, depending on the scheme.
SIP Variants
- •Step-up SIP (Top-up SIP): The instalment amount increases by a fixed sum or percentage at defined intervals.
- •Perpetual SIP: No end date is specified; the SIP continues until an explicit cancellation instruction.
- •Trigger SIP: Instalments are activated only when specific market conditions are met.
Tax Treatment
Returns from SIP redemptions attract capital gains tax based on the fund type and holding period of each unit, with FIFO applied to determine which units are being redeemed.