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Warren Buffet, an extraordinary investor says, “buy low, sell high”. Undoubtedly, this is the ideal approach to gain through investing in financial markets.

However, for a common investor, timing the market might be a troublesome task. It is generally not possible to time the market when you make your investments either in stocks or in mutual funds.

One approach to beat this restriction is to start a SIP in Mutual Fund. It has a planned mechanism to gather more or less units depending on ongoing market conditions.

What is a SIP in Mutual Fund?


Systematic Investment Plan, generally known as a SIP, permits you to consistently invest a fixed amount of money in your preferred mutual fund scheme/s.

A SIP is a simple instrument that encourages you to invest consistently in a mutual fund scheme, particularly Equity Funds.

In SIP, a fixed amount of money is deducted from your bank account each month. This amount is then coordinated towards the mutual fund scheme you decide to invest in.

Undoubtedly, a SIP encourages you to grow your investments in equity mutual fund schemes over a period. It should be noted that most of the financial advisors don't suggest putting a lump sum in value in Equity Mutual Funds as it can involve emotional decisions. 

Benefits of investing with SIP in Mutual Fund

SIP Mutual Fund

1. Disciplined Investments

Obviously, the investment in a SIP is systematic. One you begin an SIP in a mutual fund by selecting the amount and the time period of investment, you don’t have to do anything in particular. All you need to do is to make sure you have sufficient funds in your bank account.

2. No Timing the market

You no longer have to worry if it is the right time to make an investment or not. Investing through SIP does not make you bother about market conditions as it is a periodic investment which will be made automatically.

3. Rupee cost averaging

The greatest advantage of SIP in Mutual Fund is the rupee cost averaging., It implies that when the NAV is high, your installment amount can gain lesser units. Similarly, if the NAV is low, the installment amount can gain more units. Thus, the average cost of your total holdings decreases as the quantity of investments increases. Therefore, you can acquire higher benefits on your total principle amount when you exit, giving you an expanded SIP rate of return.

4. Power of Compounding

When you keep investing over a long period of time, you are able to accumulate a higher return because of the power of compounding. This is because your mutual fund returns are invested again to acquire more units of the same fund. Therefore, your interest earned is able to earn a further return through the compounding effect.

5. Easy to invest

Starting with a SIP in mutual fund is an easy task. You can start an SIP for as low as Rs. 500. It is a hassle free process as it is automatically deducted from your bank account.

SIP in Mutual Fund versus One time investment


Investments also comes with choices. Apart from choosing the schemes to invest in, one can also choose how investment has to be made.

Firstly, one can make a one-time investment in mutual funds via a lump sum investment. Secondly, once can choose to invest a fixed amount of money over a period of time through a systematic investment plan (SIP).

Without a doubt, selection of mode of investment can make a huge difference in one’s investment portfolio.

SIP in Mutual Fund

Understanding SIP in Mutual Fund versus Lump sum


Clearly, both SIP and lump sum investments allow investors to generate returns and wealth creation through mutual funds. However, the frequency of making investments is the main difference between SIP and lump sum method.

SIPs allow you to invest a fixed sum of money in a mutual fund scheme periodically, for example daily, weekly, monthly, quarterly or half-yearly etc.

On the other hand, lump sum investments are a bulk investment made at a particular period of time in a particular scheme.

The minimum amount required for investment also differs. An SIP investments can begin with as low as Rs.500 per month while lump sum investments need required minimum of Rs.1,000 investment.

SIP in mutual funds is a suitable option for investor with a regular income. For example, if you just begin working and have a fixed salary, SIP plans are best to begin your investment journey.

For investors having a relatively high amount of money and risk tolerance, lump-sum investments may be more beneficial.

To get a detailed understanding of difference between SIP and lumpsum, click here.

Key Points to make a SIP in Mutual Fund


1. Set up financial objectives:

Firstly, you must fix financial objective before you began your SIP in mutual fund. Determine if you are investing for your retirement or higher education of your children!

Having a set objective gives you an idea about choosing the right fund scheme and amount for investment.

2. Access the value:

Secondly, you must know the actual current value of your financial objective and what will it be in the future. This will help you in setting up an order to fulfill these objectives.

3. Set up a time frame:

Thirdly, determine if you are investing for a short-term, mid-term, or long-term. It will help you to choose the right of assets to invest in.


4. Wisely choose asset classes:

Asset allocation determines the returns. It is important to have diversification of asset classes in your investment portfolio. This helps you to generate good returns even when the market is highly volatile.

5. Choose right scheme:

There are many factors you need to consider while choosing the right scheme for your SIP. You must track past performance of the scheme, check about the fund manager, track record of the AMC among others, etc.

6. Wisely select SIP date:

Selecting the right bank and the best SIP date play an important role. You must choose the right date for SIP after you have certain regular income credit in your account.

For example, if you get your salary on 1st day of every month, choose any date from 2nd to 28th for your SIP debit. It is advisable to have the SIP debit within the first week of the money credit.

A closing thought


In short, we can say that SIPs offer a great opportunity for beginners to save money in the long term. While lump-sum investments may also be considered a good investment, SIP remains a great tool to save money with reduced risk. The great advantage here is that it not only eliminates emotional decisions but also reduces the average cost of your total investments.

Click here to view more insights.