SIP (Systematic Investment Plan)
A systematic investment plan (SIP) is an automated arrangement to invest a fixed amount into a mutual fund or ETF at regular intervals, typically monthly. It is the structured, automatic application of dollar-cost averaging: contributions are deducted and invested on schedule, buying more units when prices fall and fewer when they rise. SIPs are especially popular for long-term, hands-off fund investing.
Worked example
You set up a SIP of $200 a month. Over 4 months the fund's net asset value is $20, $25, $16 and $20. You buy 10, 8, 12.5 and 10 units — 40.5 units for $800. Average cost = 800 ÷ 40.5 = $19.75 per unit.
Why it matters
A SIP matters because automation enforces consistency, turning saving into a habit that runs without active decisions and removing the temptation to time the market. The common pitfall is treating the SIP as set-and-forget forever: contributions should still be reviewed periodically against changing income and goals, and the underlying fund's fees and performance should be monitored.
Frequently asked questions
Is a SIP the same as dollar-cost averaging?
Essentially yes — a SIP is the automated, productised form of dollar-cost averaging offered by fund providers. The strategy is identical; the SIP is the mechanism that runs it automatically.
Can I change or stop a SIP?
Yes. Most SIPs let you pause, increase, decrease or cancel contributions at any time without penalty, which makes them flexible as your income and goals change.
Related terms: Dollar-Cost Averaging, Compound Interest