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Finance Sikh

By Ashish Malaviya · First published 2/11/2026

What Is a SIP? How Monthly Investing Works in India

Learn how SIPs work in India, including mutual-fund units, NAV, instalments, rupee-cost averaging, missed payments and investment risks for beginners.

A systematic investment plan (SIP) simply refers to investing a pre-determined sum into a mutual fund scheme at regular intervals. Due to salaries and household budgets often being in monthly chunks many investors opt to invest each month. It is simply an investment method and not an investment asset or guarantee. The money will be invested into whichever scheme you have chosen and will be subject to the value of the underlying scheme.

SIPs can help create structure but do not eliminate market risk. It is important to consider the underlying scheme, its value, what you will be charged and whether you might need the money soon. While it can create structure in your investing by having fixed amounts taken out of your account, it will not help you invest in a scheme that doesn’t suit your needs. Mutual funds are linked to the market (unless specified otherwise due to the scheme structure and holdings), meaning the amount returned could be less than what you have invested.

Let’s say you have instructed your platform or mutual fund provider to take ₹2,000 (example amount) from your account each month. When the payment is successful you will be buying units in the scheme you have selected based on the scheme rules and NAV. You will not receive a fixed number of units each month. The amount of units you receive will depend on the amount invested and the applicable NAV, whilst considering any charges that apply.

The Net Asset Value (NAV) shows the value of a mutual fund scheme’s assets after liabilities have been accounted for. This is then divided by the number of units in the scheme. This is generally published each business day. However just because you see a scheme with a lower NAV of ₹20 compared to ₹40 does not mean it is cheaper or better. This is because the schemes may have different assets, history and risk. It is similar to seeing two receipt totals in a shop.

If you invest ₹2,000 (example amount) and the NAV is ₹25 you will receive 80 units. If you decide to invest another ₹2,000 and the NAV has dropped to ₹20 you will receive 100 units. If the NAV has increased to ₹40 you will receive 50 units. This will vary depending on the scheme rules and documentation.

Rupee Cost Averaging

Investing fixed amounts regularly will mean at lower NAVs you will get more units and vice versa. This is known as Rupee Cost Averaging. However it does not guarantee you’ll make a profit. If the scheme falls in value over a period of time you may still end up with less value in your units.

Let’s say you invest ₹1,000 (example amount) each month. The NAVs are ₹10, ₹20 and ₹25. This means you would have bought 190 units (100+50+40) for a total investment of ₹3,000. Your average cost per unit is around ₹15.79. If the NAV drops to ₹12 your total investment would be worth ₹2,280 (before any charges or tax). Just because the average cost is lower than some of the purchase prices doesn’t mean you will make a loss.

SIPs are not an investment

Sometimes people talk about investing in a SIP. A SIP is actually simply an investment method. The scheme is what you are investing in. Even if you have an equity, debt or hybrid scheme they can all have very different risks. Having a monthly contribution does not change the objective, the portfolio or the risk of losing value.

Before investing in a scheme always read through the scheme information document, key information memorandum and risk statements. Consider the scheme’s objective, portfolio, benchmark, charges, redemption rules and level of risk. Don’t just invest because your friend is investing, it looks good on social media or has had a great return recently. Past performance is historical data and cannot be relied upon.

Amount and timing

Consider all of your monthly outgoings such as rent, food, transport, family support, EMIs, insurance and irregular payments. Whilst you may think you can afford the monthly contribution, you may find it stressful when you have to pay for school fees, repairs or travel. It’s generally better to have a sustainable amount.

The timing of your SIP can be important. Some people choose to have it after they have received their salary. Others may want to have a buffer in place as the timing of your salary, bank holidays and standing orders may not line up perfectly. Try to ensure you have enough in your linked bank account for any essential payments. You shouldn’t miss out on paying an EMI for your loan, have a bounced payment for utilities or have to use expensive revolving credit due to your SIP.

Missed Payment

If your bank payment hasn’t gone through it generally means you won’t be purchasing the scheme as instructed. Depending on the provider, bank mandate, platform and scheme rules this will vary. If there are repeated issues the SIP may be cancelled based on the applicable rules. There may also be charges from your bank/intermediary. Be sure to read through your mandate and service carefully.

Just because you haven’t invested in this month it doesn’t mean you’ve lost all your units. They will still be invested unless they’ve been redeemed. However it could affect your goal based investing as less money has been invested. If you’re experiencing a cash flow issue it’s best to review your instructions and household budget.

Risks

The market can fall, interest rates can fluctuate, there is a risk of default and the scheme portfolio may not perform as expected. Equity schemes can be volatile in the short term. Debt schemes also have risks such as credit and interest rate risk. Hybrid schemes combine risks but will still have the potential to lose value. Understanding the risks of the fund isn’t as simple as looking at the name.

There is also practical risks. You may stop investing during a falling market and start again when prices have risen. You may not choose a scheme that suits the timing of when you need the money. Someone may think the example calculator gives a guaranteed result. Your plan should allow for uncertainty.

Common misconceptions

A SIP does not guarantee you’ll make a profit. It doesn’t guarantee you’ll have a lower average cost than lump sum investing. It doesn’t guarantee that equity schemes are safe in the short term. Whilst it’s automated from your bank it doesn’t mean the scheme has been considered for your situation. You still need to understand the product.

The NAV isn’t a rating. Just because it’s lower doesn’t mean it has more scope to increase. Just because it’s higher doesn’t mean it’s expensive. The portfolio, charges, investment strategy and risks are much more important than the unit price.

Practical review

Ensure you keep a copy of your scheme documentation and transaction confirmation. Just to make sure the correct amount was invested into the correct scheme. Understand how to pause, amend or cancel your instructions. Don’t get too caught up with the daily fluctuations. Instead look at how you’re doing with your goals and how the scheme fits with the objective stated. It’s also a good idea to check whether your goal date, income or household commitments have changed.

For a first time investor the most valuable thing to understand is the difference between your bank balance, units in your mutual funds and the fluctuating market value. Once you understand this you will find it easier to understand how useful a SIP can be.

Conclusion

A SIP can help create a regular investing habit. Every time you successfully invest you will be buying units based on the applicable NAV. This will mean the number of units will vary depending on the price. This is known as Rupee Cost Averaging. However you need to consider the underlying scheme, the risks, your time frame and whether your household can sustain investing. Always refer to official investor education and scheme documentation. This article is purely explaining how it works and won’t help you find a scheme suitable for you.

Reviewing your transactions

After investing ensure you have a copy of your transaction confirmation. Ensure that the units have been added to your account. If the money has gone out of your bank but it doesn’t look like you’ve invested, check the transaction date, units issued date and applicable NAV. Mutual funds have cut off and settlement rules so the NAV and date may not match exactly. Speak to your provider and check the official transaction history.

It’s also useful to understand the difference between what you have invested and what it’s currently worth. You may see the total invested, units held and current value. The current value will fluctuate depending on the NAV. The original investment amount is historical data. This doesn’t necessarily mean there has been an issue. If the figures don’t match review your transaction history and scheme documentation.

How often to review

Checking your mutual fund balance multiple times a day can create a sense of a personal crisis due to normal market fluctuations. Setting a review date based on your goals can be more useful. Confirm your transactions, check how the scheme fits with its objective and ensure you can still afford to invest. If there has been a significant change to your income, goal date or household commitments you may want to review sooner. A drop in NAV won’t necessarily mean it no longer fits with your original purpose.

Refer to official investor education and scheme documentation to better understand the risks. Remember all projections are scenarios and any market related balances will fluctuate.

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Sources

Educational information only. Verify current rules and consider qualified advice for personal decisions.