A Systematic Investment Plan (SIP) lets you invest a fixed amount in a mutual fund every month. Instead of timing the market, you invest regularly and benefit from rupee cost averaging — buying more units when prices are low and fewer when high. It suits anyone building wealth gradually for goals like retirement, education or a home down-payment.
The formula. SIP maturity value is M = P × [((1 + r)^n − 1) ÷ r] × (1 + r), where P = monthly investment, r = monthly return rate (annual rate ÷ 12 ÷ 100), and n = total number of monthly instalments. The final (1 + r) treats each instalment as invested at the start of the month.
Worked example. Investing ₹5,000 a month for 10 years at an assumed 12% annual return gives r = 0.01 and n = 120. The formula produces a maturity value of about ₹11.6 lakh — of which ₹6 lakh is your own contribution and roughly ₹5.6 lakh is wealth gained from compounding.
SIPs are eligible for LTCG tax at 12.5% on gains above ₹1.25L/year (equity funds held > 1 year). ELSS SIPs also qualify for 80C deduction up to ₹1.5L/year.
Where it's used. SIPs are the most common way Indians invest in mutual funds. Fixing a monthly amount turns investing into a habit, smooths out market swings, and lets a modest sum compound into a large corpus over 10–20 years. Returns are market-linked and not guaranteed — the longer the horizon, the more compounding works in your favour.