Mutual funds are one of the best investment options for beginners who want to grow their money without taking the stress of daily market ups and downs.
Among different ways to invest in mutual funds, SIP (Systematic Investment Plan) is the most popular and easiest method.
In this article, we will explain what mutual funds are, what SIP is, how SIP works, its benefits, risks, types, and how beginners can start SIP in India.
What Are Mutual Funds?
A mutual fund is an investment where money from many investors is collected and invested in stocks, bonds, or other assets. This money is managed by a professional fund manager.
Instead of investing directly in individual stocks, you invest in a mutual fund and get the benefit of:
- Professional management
- Diversification (money spread across many companies)
- Lower risk compared to direct stock investing
What Is SIP (Systematic Investment Plan)?
SIP is a method of investing in mutual funds where you invest a fixed amount regularly (monthly, quarterly, etc.).
For example:
- You invest 25$ every month in a mutual fund
- The amount is automatically deducted from your bank account
- Units are purchased based on the current market price (NAV)
SIP helps you build wealth slowly and consistently.
How Does SIP Work?
SIP works on a simple principle of regular investing.
Let’s understand with an example:
- Monthly SIP amount: $24
- SIP duration: 10 years
- Total investment: $2890
If the mutual fund gives an average return of 12% per year, your investment can grow to around $5500 – $6000 (approx).
Each month:
- When the market is high → you get fewer units
- When the market is low → you get more units
This is called rupee cost averaging, which reduces risk.
What Is NAV in SIP?
NAV (Net Asset Value) is the price of one unit of a mutual fund.
NAV changes daily based on the market value of the fund’s investments.
- Higher NAV → fewer units
- Lower NAV → more units
Over time, as NAV increases, your investment value grows.
Benefits of SIP for Beginners
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① Start with a Small Amount
You can start SIP with as little as $5 – $6 per month.
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② Disciplined Investment
SIP creates a habit of regular saving and investing.
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③ Rupee Cost Averaging
You buy more units when prices are low and fewer when prices are high.
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④ Power of Compounding
Long-term SIP benefits from compounding, where returns earn further returns.
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⑤ No Need to Time the Market
You don’t have to worry about the best time to invest.
Types of SIP
1. Regular SIP
Fixed amount invested at regular intervals.
2. Step-Up SIP
SIP amount increases every year as your income increases.
3. Flexible SIP
You can change the SIP amount based on your cash flow.
4. Perpetual SIP
No end date; continues until you stop it.
Types of Mutual Funds Suitable for SIP
1. Equity Mutual Funds
- Higher returns
- Higher risk
- Best for long-term (5+ years)
2. Debt Mutual Funds
- Lower risk
- Stable returns
- Suitable for short to medium-term goals
3. Hybrid Mutual Funds
- Mix of equity and debt
- Balanced risk and returns
4. Index Funds
- Track market index like Nifty 50
- Low cost and transparent
Risks Involved in SIP
SIP reduces risk but does not eliminate it.
- Market risk still exists
- Returns are not guaranteed
- Short-term SIP may give low or negative returns
Tip: SIP works best when continued for a long time (minimum 5–7 years).
SIP vs Lump Sum Investment
| SIP | Lump Sum |
|---|---|
| Invest small amount regularly | Invest large amount once |
| Lower risk | Higher risk |
| Suitable for beginners | Requires market timing |
| Encourages discipline | Invest a large amount once |
How to Start a SIP in Mutual Funds (Step-by-Step)
Starting a SIP (Systematic Investment Plan) in mutual funds is simple and suitable even for first-time investors. You don’t need a large amount of money or deep market knowledge to begin.
Complete KYC and Account Setup
Before you can invest, you need to complete basic identity verification and open an investment account.
Typically, you will need:
- Government-issued ID (such as Social Security Number or Tax ID)
- Proof of identity and address
- A linked bank account for transfers
- An online brokerage or mutual fund account
Most platforms allow you to complete this process online in a few minutes. Once verified, you can invest in mutual funds without repeating these steps.
Choose a Mutual Fund
After setting up your account, the next step is selecting a mutual fund that matches your goals.
For beginners:
- Equity (stock) mutual funds are suitable for long-term growth
- Bond funds are better for stability and lower risk
- Balanced or hybrid funds offer a mix of growth and safety
- Index funds are popular due to low costs and market-matching returns
When choosing a fund, look at:
- Long-term performance history
- Expense ratio (fees)
- Investment objective
- Risk level
Avoid choosing funds only based on recent high returns.
Decide SIP Amount and Investment Date
Now decide:
- How much do you want to invest regularly
- How often you want to invest (monthly is most common)
You can start SIP with a small amount, such as $25 or $50 per month, depending on the platform.
Choose a date that aligns with your paycheck so your bank account always has enough balance.
Link Your Bank Account and Set Auto-Investment
To make SIP work smoothly:
- Link your bank account to the investment platform
- Enable automatic recurring investment
This ensures:
- Money is invested on time
- You don’t forget or delay investments
- You build a disciplined investing habit
Start Investing and Stay Consistent
Once everything is set:
- Your SIP will run automatically
- Mutual fund units are purchased at current prices
- You can track performance anytime online
Market ups and downs are normal. Avoid stopping your SIP during market declines, as these periods often help you buy more units at lower prices.
Ways to Start SIP in Mutual Funds
You can begin a SIP through several channels:
1. Mutual Fund Company Websites
You can invest directly through fund providers, often with lower costs.
2. Online Brokerage Platforms
Most US brokerages offer easy recurring investment options with dashboards and tracking tools.
3. Banks
Banks may offer mutual fund investments, though fees can be slightly higher.
4. Financial Advisors
A registered advisor can help design a SIP plan based on your income, goals, and risk tolerance.
How Much SIP Should a Beginner Start With?
There is no perfect number, but a practical guideline works well.
A Simple Rule of Thumb
- Invest 10–20% of your monthly income
- Increase your SIP amount as your income grows
Example:
- Monthly income: $4,000
- Suggested SIP amount: $400–$800 per month
If that feels high, start smaller and increase gradually.
Power of Small SIPs
Even small, regular investments can grow significantly over time due to compounding.
For example:
- Investing $100 per month for 20 years
- With an average annual return of 8–10%
- Can grow into tens of thousands of dollars
The key factors are time, consistency, and patience.
Common Myths About SIP (Explained)
| Myth | Reality |
|---|---|
| SIP guarantees returns | SIP does not offer guaranteed returns. Investment results depend on market performance and the type of mutual fund you choose. |
| SIP is only for high-income earners | SIP is suitable for everyone. Most platforms allow you to start with small monthly investments and increase them over time. |
| SIP is completely risk-free | SIP helps reduce market timing risk but does not remove market risk. Staying invested long term helps manage volatility. |
Final Tip for Beginners
- Start early
- Invest consistently
- Increase contributions over time
- Stay invested during market ups and downs
SIP is not about quick profits. It is about building long-term wealth in a simple and disciplined way.
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