A SIP buys more units when prices fall and fewer when they rise. Here is what that means for your average cost, and what it does not promise.
A Systematic Investment Plan (SIP) is simply an instruction: invest a fixed amount in a chosen mutual fund scheme on a fixed date, every month (or week, or quarter). The money is debited from your bank account automatically and units are allotted at that day’s Net Asset Value (NAV).
Rupee-cost averaging, with numbers
Because the amount is fixed and the NAV changes, the number of units you get changes every month. Suppose you invest ₹5,000 a month for four months:
| Month | NAV (₹) | Units bought |
|---|---|---|
| 1 | 50 | 100.0 |
| 2 | 40 | 125.0 |
| 3 | 45 | 111.1 |
| 4 | 55 | 90.9 |
You invested ₹20,000 and hold 427 units, so your average cost is about ₹46.84 per unit, lower than the simple average NAV of ₹47.50. That gap is rupee-cost averaging at work: the low-NAV months bought more units.
What it does not do. Rupee-cost averaging smooths your purchase price. It does not assure a profit, and it does not protect you against loss if the market falls and stays down.
Why discipline matters more than timing
The real strength of a SIP is behavioural. It takes the “is this a good time?” question off the table, so you keep investing through both good and bad months. Most investors who stop SIPs do so during a fall, which is when the averaging effect helps the most.
Practical tips
- Pick a SIP date a few days after your salary is credited, so instalments do not bounce.
- Register your bank mandate with a limit higher than your current SIP total, so you can step up later without new paperwork.
- Consider an annual step-up in line with your income.
- Match the scheme to the time you can stay invested. Equity schemes need years, not months.
Try different amounts and periods on our SIP calculator. The figures are illustrations based on an assumed rate, not a projection of what any scheme will deliver.
This article is for general information and education only. It is not investment, tax or legal advice, nor a recommendation of any scheme or product. Mutual fund investments are subject to market risks; read all scheme related documents carefully.
