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For new and experienced investors, a systematic investment plan (SIP) is a way to automate investments, where a set sum is invested every quarter or every month. This is ideal if you want to get started by investing a small amount instead of lump-sum investment. In this article, we will cover in detail as to what is SIP investment and how to invest in it.
With the Systematic Investment Plan (SIP), you invest in mutual funds by setting aside a specific amount of money each month or on a regular basis. By staying invested for the long-term, a SIP mutual fund allows your investments to benefit from compounding and mitigate market volatility through rupee cost averaging.
A Systematic Investment Plan (SIP) is a disciplined approach to invest in mutual funds. Here’s how SIP works, step by step:
Let’s assume you start a mutual fund SIP investment of INR 5,000 per month in an equity scheme, expecting a 12% annual return compounded monthly.
Also Read: Tax on Debt Mutual Funds
Investing through SIP Investment mode offers investors benefits not only in growth but also makes investments more efficient and simpler. Here are some key benefits of SIP Investment:
Your return on investment is reinvested to generate even more returns over time, which is beneficial if you’re looking for the best SIP for long term returns.
By investing a fixed amount in SIP, you can benefit from the reduction in NAV, which gets you more units of the mutual funds. This lowers your average purchase price and reduces risk due to market fluctuations. Consider this table
Month
Investment Amount (₹)
NAV (₹)
Units Allotted
January
5,000
50
100.00
February
40
125.00
March
25
200.00
April
Total
20,000
—
525.00
As per this table, the average purchase price of 525 units is INR 38.10 per unit. By averaging out the cost, you can protect your investments from market volatility.
SIP encourages investors to invest regularly, which builds a habit of investing and saving, essential for long-term wealth creation.
You can start, pause, increase, skip, or stop your SIP as per your financial situation, and the process is automated, making it easy to manage without manual intervention.
SIPs allow you to start investing with small, manageable amounts, making it accessible for individuals with varying income levels and enabling gradual wealth accumulation.
SIPs are managed by experienced fund managers who use their expertise and market insights to make informed decisions.
Investors can choose to invest in different mutual funds through SIPs which allows them to diversify their mutual fund portfolio, mitigating the risk and ensuring portfolio stability.
Depending on their investment profile, investors can select from a variety of SIP types. Some of the most popular types of SIPs are:
You invest a fixed amount at regular intervals, usually monthly, making it a straightforward and disciplined way to build wealth over time.
This type of SIP lets you increase, decrease, or pause your investment amounts and intervals based on your changing financial situation, offering greater control and convenience.
This allows investors to increase their investment amount towards their SIP aligning with their growing income and accelerating wealth creation.
Investments are automated when certain market conditions or preset triggers are met, which streamlines your investments as per the market conditions without manual intervention.
This SIP continues indefinitely without a fixed end date, letting you invest for as long as you wish, helping you stay invested for long-term goals. Many Indian fund houses offer SIPs for NRIs, allowing them to invest in India‑based mutual funds, subject to KYC and country specific compliance.
You can invest in multiple mutual fund schemes from a single fund house through one SIP, making diversification easier and reducing paperwork.
This type of SIP provides the dual benefit of wealth creation and life insurance coverage, giving you added financial security along with your investments.
There’s no such ideal time to invest in SIP, starting early is advised as it allows your investment to grow through compounding, provided you have a stable income and are willing to stay invested. More important than timing is consistency and learning how to invest in SIP based on your financial goals and risk appetite.
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Before starting a SIP, it’s important to keep a few key factors in mind to ensure your investment journey is smooth and aligned with your financial goals:
The steps to invest in a SIP with DBS Treasures are as follows:
You can monitor, modify, or stop your SIP anytime through the DBS Treasures portal, ensuring flexibility and convenience.
Through SIPs investors can invest in different types of mutual funds, each different in terms of investment strategies and securities it holds. Here are different types of mutual funds for SIP:
Type of Fund
Description
Equity Mutual Funds
This invests in stocks, with an aim for long term capital appreciation. This is ideal for investors looking for best SIPs for long term.
Debt Mutual Funds
Invest in fixed-income securities like bonds and government securities. Ideal for investors seeking stable returns and lower risk.
Hybrid/Balanced Funds
This type of mutual fund SIP investments combines both equities and debt securities to create a more balanced approach. Investors with moderate risk appetite can consider this.
Index Funds
These mutual funds track market indices such as Nifty 50 or Sensex, this type of SIP plans generally have lower expense ratios.
ELSS (Tax-saving Funds)
Equity Linked Savings Schemes (ELSS) offer tax benefits to investors under the Section 80C, these investments come with a three-year lock-in period.
Sectoral/Thematic Funds
This allows investors to invest in specific sectors like IT, pharma or infrastructure or follow a certain theme.
International Funds
Indian investors seeking exposure in overseas markets can opt for these types of mutual funds to benefit from global growth opportunities.
Liquid Funds
This fund provides low risk and high liquidity, preferable for investors looking for a fund to park their wealth.
Many common misconceptions about SIPs can discourage investors from starting or continuing their investments. Here are some myths clarified to help you make informed decisions:
SIP investments are subject to tax based on the type of mutual fund, holding period, and nature of returns. Understanding these rules is essential for effective tax planning and maximizing your post-tax returns.
Fund Type
Holding Period
Tax on Gains
Key Points
Equity Funds
≤ 12 months (STCG)
20%
Short-term capital gains taxed at 20%.
> 12 months (LTCG)
12.5% above INR1.25 lakh/year (old: 10% above INR1 lakh)
First INR1.25 lakh/year exempt; each SIP treated as a separate investment.
Debt Funds
≤ 24 months (STCG)
Taxed as per income slab
For investments after April 2023, STCG taxed at slab rate.
> 24 months (LTCG)
12.5%
For investments after July 2024; earlier rules differ.
ELSS (Tax-saving SIP)
3-year lock-in
LTCG: 12.5% above INR1.25 lakh/year
Up to INR1.5 lakh/year deductible under Section 80C.
Dividends (All Funds)
Taxed as per investor’s income slab
Added to total income and taxed accordingly.
Navigating SIP taxation requires informed and strategic planning. DBS Treasures offers wealth management solutions tailored to your financial goals. Leverage expert insights to optimise post-tax outcomes and preserve long-term value.
Also Read: Mutual Fund Taxation
Before starting a SIP, it’s important to understand that, like any investment, SIPs carry certain risks that can affect your returns and financial goals.
SIP is a smart choice if you seek disciplined, long-term wealth creation with manageable risk and flexibility. It suits investors of all experience levels, enabling regular investment without needing to time the market. However, assess your goals, risk appetite, and financial situation and choose the top-rated mutual funds for SIP.
SIPs are not risk-free, but they offer a practical path to financial growth. Pairing your SIPs with a DBS Treasures premium savings account ensures seamless auto-debits, efficient fund management, and enhanced banking privileges. For NRIs looking to build wealth in India, starting a SIP alongside an NRI Savings Account can provide dual benefits of convenient banking and long-term investment growth.
