SIP
A Systematic Investment Plan invests a fixed amount in a scheme at regular intervals.
SIPs average your purchase cost across market levels and remove the need to time entries. Returns on a SIP should be measured with XIRR, since each instalment stays invested for a different length of time.
Why SIP matters when comparing products
When comparing financial products like mutual funds in India, understanding SIPs is crucial because they offer a disciplined approach to investing. They allow investors to benefit from rupee cost averaging, reducing the impact of market fluctuations over time. This systematic method can lead to different return profiles compared to lump sum investments, making it essential for a fair comparison of long-term investment strategies across various schemes.
Illustrative example
Consider investing ₹1,000 monthly. In January, you buy 10 units at ₹100 each. In February, you buy 12.5 units at ₹80 each. In March, you buy 8 units at ₹125 each. Your average purchase cost per unit over these months is approximately ₹97.22 (₹3,000 / 30.5 units), demonstrating how SIPs average your entry price.
Related terms
Extended Internal Rate of Return calculates returns when money is invested or withdrawn at multiple points in time.
A Systematic Withdrawal Plan redeems a fixed amount from a scheme at regular intervals.
A SIP where the instalment increases by a fixed percentage or amount every year.