What is a SIP and how does it work?
Updated · CardKhoj Editorial Team
Short answer
A SIP (Systematic Investment Plan) invests a fixed amount in a mutual fund every month through auto-debit. You buy more units when prices are low and fewer when high, which averages your cost over time. For example, ₹5,000 a month for 15 years at an assumed 12% annual return could grow to about ₹25 lakh on ₹9 lakh invested.
Why SIPs work
- Discipline — investing happens automatically every month.
- Rupee cost averaging — you do not need to time the market.
- Compounding — returns earn further returns the longer you stay invested.
- Flexibility — start from ₹100–₹500, and pause, increase or stop any time.
Illustration (assumed 12% annual return)
| Monthly SIP | 10 years | 15 years | 20 years |
|---|---|---|---|
| ₹2,000 | ≈ ₹4.6 lakh | ≈ ₹10.1 lakh | ≈ ₹20 lakh |
| ₹5,000 | ≈ ₹11.6 lakh | ≈ ₹25.2 lakh | ≈ ₹50 lakh |
| ₹10,000 | ≈ ₹23.2 lakh | ≈ ₹50.5 lakh | ≈ ₹1 crore |
Returns are not guaranteed — equity funds can fall sharply in some years. SIPs suit goals at least five years away.
Tax
Gains on equity funds held over one year are long-term and taxed at 12.5% above ₹1.25 lakh of gains a year; short-term gains are taxed at 20%.
Plan yours with our SIP calculator.
This answer is general information, not personalised financial or tax advice. Rules, rates and limits change — confirm with your bank, the RBI or a qualified adviser before making decisions.