Considering the volatile nature of the stock market, investing a lump sum amount in a mutual fund may not always be the right way to go. This is because lump sum investments cannot protect you from the highs and lows of the market. In addition to this, there’s also the risk of investing in the market at the wrong time.

Fortunately, there’s a way to reduce these risks. How, you ask? By opting to invest in a mutual fund through a SIP. Wondering what it is and how it can help you invest in mutual funds in a much better manner? Here’s a quick overview of what it is and how it works.

What is a SIP?

A Systematic Investment Plan, also known as a SIP, is a unique mode of investment that allows you to invest in mutual funds. A SIP requires you to invest a fixed amount of money consistently in a mutual fund of your choice for a specified tenure. As you continue to invest in a mutual fund consistently over the various highs and lows of the market, a SIP helps reduce your investment risk.

Benefits of a SIP

A Systematic Investment Plan offers a host of different benefits. Here’s a quick overview of a few of them.

1. Flexibility

One of the major advantages of a SIP is that it is very customizable. You get the freedom to choose the amount of investment, the tenure, and the mutual fund. Such a high level of flexibility makes Systematic Investment Plans the perfect investment mode for all kinds of investors irrespective of their risk profile.

2. Low Investment

Systematic Investment Plans have no entry barriers whatsoever. You can start a SIP in a mutual fund by investing as low as just ₹500 per month. Thanks to such low minimum investment limits, you can easily partake in the wealth-creation process without burning a hole in your wallet. That’s not all. Most SIPs also give you the option to increase the amount of investment over time as well.

3. Automation

Unlike a lump sum investment, you won’t have to invest manually if you opt for a SIP. Once you’ve set it up, the chosen amount of investment is automatically deducted from the linked bank account and is used to purchase units of the mutual fund of your choice.

4. Rupee Cost Averaging

When the market is at a high, the SIP purchases fewer mutual fund units and when the market is at a low, the number of units purchased would be higher. As a SIP continues to invest in the mutual fund for a long period, the cost of your investment is reduced significantly through a phenomenon known as rupee cost averaging. Thanks to the lower per-unit cost, the returns that you get are likely to be higher than what you would have experienced had you made a lump-sum investment.

5. Convenience

Another very important benefit of investing in a mutual fund through a SIP is that it eliminates the need to time the market. A Systematic Investment Plan is designed to work through the different market phases. Therefore, once a Systematic Investment Plan is set up, you won’t have to spend time researching or analysing market movements. This makes a SIP the perfect option for beginner investors who lack an in-depth understanding of the stock market and those who don't have the time to conduct extensive research.

6. Financial Discipline

Many individuals lack financial discipline, which happens to be a major reason for them not reaching their financial goals. When you start a SIP, you essentially commit to investing a fixed sum of money for a specific period. This tends to automatically bring about the financial discipline required for the wealth creation process.


As you can see, when it comes to investing in a mutual fund, a Systematic Investment Plan is the right way to go. It can not only help reduce the risks involved with your stock market investment but can also increase the return that you get to enjoy due to the phenomenon of rupee cost averaging. That said, before you start a SIP in a mutual fund, make sure to thoroughly research the fund that you wish to invest in. Choosing the right fund is key to ensuring that you reach your financial goals on time.

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Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.