A Systematic Investment Plan, or SIP, is the simplest way for a salaried family to invest in mutual funds. You choose a fund, an amount and a date, and that amount is invested automatically every month. This guide covers everything a first-time investor needs to know, in the order you will need it.
How a SIP actually works
On your SIP date, the amount is debited from your bank account and used to buy units of the mutual fund at that day’s NAV (Net Asset Value, the price of one unit). If the NAV is ₹50 and you invest ₹5,000, you receive 100 units. Next month, if the NAV has fallen to ₹40, the same ₹5,000 buys 125 units. If it has risen to ₹60, you get about 83 units.
Over time you buy more units when prices are low and fewer when they are high. Your average cost ends up lower than the average price over the period. This is called rupee cost averaging, and it is why a SIP turns market falls from something frightening into something useful.
What you need to start
- KYC: a one-time identity check using your PAN, Aadhaar and a selfie or video verification. Once done, it works across all fund houses.
- A bank mandate: an e-mandate or NACH authorisation that lets the fund debit your SIP amount automatically.
- A goal: not required by any rule, but the most important item on this list. A SIP with a name — “Aarav’s college” or “Retirement at 60” — is far harder to stop.
How much should you invest?
Start with what you can continue through a bad month, not what sounds impressive. Many families begin with 10–20% of take-home pay across all goals. Many schemes accept SIPs from ₹500 a month, and the amount can be raised any time.
More important than the starting amount is the step-up: raising the SIP every year as your income grows. At an assumed 12% return, a ₹10,000 SIP for 20 years grows to about ₹92 lakh. Raise it by 10% every year and the same 20 years can build roughly twice as much. See the difference in our step-up SIP calculator.
Which fund for which goal?
- Goals more than 7 years away (retirement, a young child’s education): mainly equity funds such as flexi cap, large cap or index funds.
- Goals 3 to 7 years away (a car, a house down payment): hybrid funds that mix equity and debt, such as balanced advantage or equity savings funds.
- Goals under 3 years away: debt or liquid funds, not equity.
These are broad categories, not recommendations of specific schemes; the right choice depends on your full situation.
What does it cost?
There is no fee to start or stop a SIP. The fund charges a yearly expense ratio, already reflected in its NAV. Some funds charge an exit load — often 1% for equity funds — if you redeem units within a year of buying them. There is also a tiny stamp duty of 0.005% on each purchase.
Can you stop, pause or change it?
Yes. A SIP is not a loan or a contract with penalties. You can stop it at any time, pause it for a few months with most fund houses, raise or lower the amount, or change the date. Units already bought stay invested and keep growing.
How long should you continue?
For equity funds, think in terms of at least 5 to 7 years, and ideally until the goal arrives. Short periods can show losses; the longer the period, the more the ups and downs even out. The final few years add the most money because compounding works on everything invested before — which is why starting late or stopping early costs so much. Try the cost of delay calculator to see this in rupees.
How is a SIP taxed?
Each instalment is treated as a separate purchase. For equity-oriented funds, units held more than 12 months qualify for long-term capital gains tax at 12.5% on gains above ₹1.25 lakh in a financial year; units sold within 12 months are taxed at 20%. When you redeem, the oldest units are sold first. Our mutual fund tax guide explains the details.
Five habits that make a SIP work
- Set the SIP date a day or two after your salary is credited.
- Step it up every year, even by ₹500.
- Never stop it because markets fell.
- Review once a year — not every day.
- Keep an emergency fund so life never forces you to break it.
Ready to start, or want someone to check your current SIPs? Message us on WhatsApp — we help with KYC, fund selection and the paperwork.
Figures above are illustrations based on assumed rates of return and are not a promise or guarantee of future returns. Mutual fund investments are subject to market risks, read all scheme related documents carefully. WishWiseWealth is an AMFI-registered Mutual Fund Distributor (ARN-188221).