SIP Explained for Beginners

If there is one word that has become extremely popular among new investors in the last decade, it is SIP. You hear it everywhere — from bank advertisements to YouTube finance channels. Some say, “Start SIP early,” others say, “SIP makes you rich.”
But very few people explain what SIP truly is, what it is not, and how to use it correctly.
After working for more than 15 years in equities, derivatives, commodities, mutual funds, and portfolio management, and after managing thousands of investors — one thing has always been clear:
Most people are not confused about money.
They are confused about the method.
And SIP is one method where maximum confusion exists.
So in this long, detailed, yet very simple guide, I will explain SIP the way I explain it to my own clients — without fancy English, without complicated charts, without unnecessary financial jargon.
Just straightforward logic, clear examples, and practical wisdom that actually helps you invest better.

The Biggest Misconception — SIP Is Not an Investment

Let’s start with a very important truth:

  • SIP is NOT an investment.
  • SIP is only a method of investing.
  • You cannot “buy an SIP.”
  • You cannot “sell an SIP.”
  • It’s not a product.
  • It’s not a scheme.
  • It is only a style of investing — a way to put money into an asset regularly, usually every month.

Before choosing a mutual fund, a stock, or any investment, you should first know what SIP is.

If I ask someone:
Why are you doing SIP?
Common answer is: “Sir, SIP gives good returns.”
But SIP doesn’t “give” returns.
The asset class gives returns.
SIP only helps you invest in that asset slowly and consistently.

I will explain this with the simplest example.
Imagine you want to deposit ?1,00,000 in a Fixed Deposit (FD).
You have two choices:

  • Put the entire ?1,00,000 in one shot ? This is lumpsum investing.
  • Put ?5,000 or ?10,000 every month ? This is SIP-style investing.

SIP simply means:

  • You invest small amounts regularly instead of investing a big amount at once.

Nothing more.
Nothing less.
Think of it as:
Saving + Discipline + Frequency = SIP**

I often use this to explain SIP to my clients.
When you take a home loan, you get the entire money upfront. But you return it slowly, month by month.
So EMI is a monthly outgoing.
SIP is the opposite:

  • You invest slowly, month by month, instead of putting everything upfront.So SIP is a monthly incoming for your future wealth.
  • EMIs reduce your loan.
  • SIPs increase your wealth.**

The process is similar — fixed monthly amount — but the direction is opposite.
This is why SIP feels “natural” to us.
We already understand monthly payments.

There are three major reasons why SIP works beautifully for almost everyone — whether you earn ?20,000 or ?2 lakh per month.

  • Reason 1: We Earn Monthly, Not Yearly
    Our life is built around a monthly cycle:
    Salary comes ? bills get paid ? household expenses ? a small portion is left.
    That leftover amount becomes our SIP.
    This is why SIP feels effortless.
    When money comes monthly, investing monthly fits perfectly.
  • Reason 2: SIP Brings Discipline Without Stress

Let me be honest.
Most investors don’t have the patience to track markets every day.They don’t understand when to buy, when to sell, when to stop.But SIP removes all this decision-making.When money goes automatically every month, you don’t “think,” you don’t “plan,” you don’t “time the market.”
You simply follow the system.
SIP works because it protects you from your own emotions.
And in investing, emotions destroy more wealth than market crashes.

  • Reason 3: SIP Uses Rupee Cost Averaging (Your Secret Weapon) This is one concept I really want you to understand well.
    Rupee cost averaging means:
    • When the market is high ? You buy fewer units
    • When the market is low ? You buy more units

And automatically, your cost becomes balanced. This is why SIP investors often make more wealth than people who try to “time the market.” Because SIP silently keeps buying more when others are scared.

It Can Be Used Everywhere. People think SIP means only “mutual fund investment”. That is wrong.
SIP is a method — and you can use it with many asset classes:

  • Mutual Funds SIP
  • Stocks SIP (buying shares monthly)
  • Gold SIP (Gold ETFs, Digital Gold)
  • Bonds SIP / Recurring Deposits (RD)
  • ETF SIP / Index SIP
  • Crypto SIP (systematic buying)
  • Silver SIP

Wherever you can invest monthly, SIP can be applied.

  • Slow and Steady Wealth Creation
  • The beauty of SIP is not in returns.
  • The beauty is in consistency.
  • Markets go up, markets go down. But your monthly SIP keeps going silently. This silent consistency is what builds wealth.

An SIP teaches you three powerful habits:

  • Regular saving
  • Emotional control
  • Long-term thinking

These three habits create wealth — not the market, not the mutual fund, not the SIP.

I rarely share personal examples publicly, but this one helps people understand. I started an SIP nearly 17 years ago.
During this period:

  • Markets crashed
  • Markets recovered
  • Corrections happened
  • Global crises came and went
  • Everyone had opinions
  • Short-term investors panicked

But I did only one thing consistently:

  • I kept investing every month. Without stopping. Without timing. Without fear.**
  • My average purchase price was roughly ?50–?60 per unit. Today the same unit is worth more than ?200.
    • Did I achieve this with “timing”?
      No.
    • Did I achieve this by being clever?
      No.
      **I achieved this by being consistent. SIP rewards consistency more than intelligence.**
      Most investors fail not because they chose the wrong fund — but because they stopped their SIP at the wrong time.

If you ask me, the greatest advantage of SIP is not financial — it is psychological. SIP helps you stay invested without stress.
You don’t worry about:

  • Is the market high?
  • Should I wait?
  • Should I sell?
  • What will happen in the next election?

Because every month you are doing your job quietly. SIP converts investing into a habit instead of a headache. And habits last longer than motivation.

17 Years of SIP Over many years of handling investors, I noticed five major reasons people fail with SIP.
Let me explain them one by one.

  • Mistake 1: Stopping SIP When Markets Fall
    This is the single biggest mistake in India. People stop their SIP when markets fall — but actually, that is the best time for SIP to work.
    Because when markets fall, you buy more units. Your average price drops. Your future returns increase.
    SIP + Market Crash = Best Friend
    SIP + Market High = Not so useful**
    But many investors behave in reverse.
  • Mistake 2: Doing SIP Without Choosing the Right Asset
    “How much SIP should I do?” is less important.
    “What am I investing in?” is more important.
    Never start SIP blindly just because your bank RM, YouTuber, or friend said so. Your SIP must be aligned with:
    • your goals
    • your risk appetite
    • your time horizon

If you choose the wrong asset, SIP won’t save you.

  • Mistake 3: Expecting SIP to Give Guaranteed Returns
    Let me make this very clear:
    SIP is not FD. There is no guarantee. You are investing in an asset — the asset gives returns.
    SIP is only the method.
  • Mistake 4: Doing SIP for Too Short a Time
    Some people do SIP for 1 year and then say:
    “Sir, nothing happened. No big return.”
    SIP needs time.
    Just like a plant takes time to grow.
    Just like experience takes time to build.
    Just like business takes time to succeed.
    SIP becomes powerful after 7–10 years.
    It becomes unstoppable after 15 years.**
  • Mistake 5: Random SIP Amounts Without Planning
    You should know:
  • Why am I doing this SIP?
  • What goal am I targeting?
  • How much do I need in the future?

Otherwise you are just throwing money into the market without direction.

A Simple and Practical SIP Plan for Beginners
If you want a simple, no-confusion plan, here it is.
Step 1: Decide your goal
Examples:

  • Child education
  • Retirement
  • Buying a house
  • Wealth creation
  • Emergency fund
  • Clear goal ? Clear asset ? Better SIP.

Step 2: Decide your time horizon
Short-term (1–3 years)?
SIP in debt or RD.
Medium-term (3–5 years)?
Balanced or hybrid options.
Long-term (5–15 years)?
Equity SIP.
Very long-term (15–25 years)?
Index SIP + equity SIP combination.

Step 3: Choose your asset class
Not “best SIP.”
Choose “best asset class for your goal.”

Step 4: Fix a realistic monthly amount
You don’t have to start big.
Start with ?500, ?1000, or ?2000 —
the amount doesn’t matter.
The discipline matters.

Step 5: Never stop SIP during market falls
If you just follow this one rule, your wealth will grow.
Every crash you endure builds your future returns.

Step 6: Increase SIP every year
Try to increase SIP by 5–10% every year.
This tiny habit creates massive wealth.

How Small Money Becomes Big

Let me show you something that most people don’t believe until they see it.

If you invest just ₹5000 per month:

For 10 years → ₹12 lakh contributed → wealth can be ₹20–22 lakh

For 20 years → ₹24 lakh contributed → wealth can be ₹70–80 lakh

For 25 years → ₹30 lakh contributed → wealth can be ₹1.3–1.4 crore

For 30 years → ₹36 lakh contributed → wealth can be ₹2–2.5 crore

Same ₹5000/month.

No lottery.

 No risk-taking.

 No timing the market.

Just discipline.

This depends on you.

SIP in Stocks

Good only if you understand business fundamentals, valuation, and financial statements.

SIP in Mutual Funds

Good for the 90% of people who want simple, diversified, managed investing.

Both are good — depending on who you are.

The best strategy is a combination:

SIP every month

Lumpsum during market dips

SIP is the foundation.

 Lumpsum is the booster.

The Truth No One Tells You

Let me be very direct:

Crashes build wealth.

Uptrends test your patience.**

During market crashes:

unit price falls

your SIP buys more

your average cost drops

your future returns increase

But emotionally people feel the opposite.

When markets crash, they stop SIP.

When markets rise, they start SIP.

This is why many investors stay average.

SIP demands courage during the bad times.**

Practical Wisdom From Real Experience

Let me summarise decades of investor behaviour in one simple line:

**SIP is not about money. SIP is about behavior.**

If you can:

  • stay patient
  • avoid stopping
  • ignore noise
  • remain consistent
  • think long-term

Your SIP will work for you. The market doesn’t reward intelligence. It rewards discipline.

  • SIP is not an investment; it is a method.
  •  SIP works because we earn monthly.
  •  SIP brings discipline and reduces emotional decisions.
  •  SIP helps you buy more when prices fall.
  •  SIP works across many asset classes — not just mutual funds.
  •  The asset class matters more than the SIP.
  •  Time + Consistency = Wealth.
  •  Crashes are your biggest opportunity.
  •  SIP is simple, but not easy — because emotions are involved.
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