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A Systematic Investment Plan (SIP) is a vehicle offered by mutual funds to help investors save regularly. It is just like a recurring deposit with the post office or bank where you put in a small amount every month, except the amount is invested in a mutual fund. The minimum amount to be invested can be as small as INR100 (100 Indian Rupees) and the frequency of investment is usually monthly or quarterly.

This is a plan where investors make regular, equal payments into a mutual fund, trading account or retirement account, such as a 401k. By using a systematic investment plan (SIP), investors are receiving benefits from the long-term advantages of dollar-cost averaging and the convenience of saving regularly without taking any actions except the initial setup of the SIP.

Dollar-cost averaging involves buying a fixed-dollar amount of a security regardless of its price. Therefore, shares are bought at various prices over time and the average cost per share of the security will decrease over time. Dollar-cost averaging lessens the risk of investing a large amount of money into a security. In addition to SIPs, many investors reinvest dividends received from their holdings back into purchasing more stock, called dividend reinvestment plans (DRIPs).

How a SIP works

A SIP allows investment in the stock market without trying to second-guess its movements. It is also known as dollar cost averaging.

A SIP means the person commits to investing a fixed amount every month. Let's say it is 1,000. When the Market price of shares fall, the investor benefits by purchasing more units; and is protected by purchasing less when the price rises. Thus the average cost of units is always closer to the lower end.) {NAV : Net Asset Value, or the price of one unit of a fund. Can be computed as follows: NAV = [ market value of all the investments in the fund + current assets + deposits - liabilities ] divided by the number of units outstanding.}

Date      NAV       Approx number of units you will get at  1000

Jan 1      10           100

Feb 1     10.5        95.23

Mar 1    11           90.90

Apr 1     9.5          105.26

May 1    9              111.11

Trade Microsoft stocks

Jun 1      11.5        86.95

 Within six months, this is a value of 589.45 units by investing just  1,000 every month.

Over the long run, money can either be gained or lost.

Let's say an investment in a Mutual Fund unit during the dot com and tech boom.

Say it began with 1,000 and kept investing 1,000 every month. This would be the result:

Investment period

             Mar 2000 � Mar 2005

Monthly investment


Total amount invested


Value of investment of Mar 7, 2005


Return on investment


 Had the units been bought on March 13, 2000 at 10.88 per unit (the NAV then), the result would be a loss because the NAV was just 7.04 on March 7, 2005. But because of spacing out the investment, it is a gain.

Conversely if the market had trended higher from the day investing started, the result would be loss of an opportunity. This would happen as subsequent purchases will get a smaller number of units for the same amount.  Great for the following needs:Futures, advisory, service, Investment, advisory,counselors,research, Manager of mutual funds, contract , fee basis.

Systematic Investment Plan can help people to be disciplined but not solve market timing issues. Further, the Investment advisors or the Mutual Fund may have a vested interest in pitching this idea to consumers as a method of future investment would also accrue effortlessly.