For many Indian investors, building long-term wealth isn’t just about saving—it’s about investing with discipline and purpose. One of the most accessible ways to do this is to invest in SIP, or Systematic Investment Plan. SIPs are designed to make investing easy, regular, and goal-oriented, especially for salaried professionals and first-time investors.
In this blog, we’ll explore why SIPs are a practical approach to long-term wealth creation, how they work, and why understanding key terms like NAV in mutual funds is essential to your journey.
Table of Contents
What is an SIP and how does it work?
A Systematic Investment Plan (SIP) is a method of investing a fixed amount regularly in a mutual fund scheme. It allows investors to contribute monthly or quarterly rather than making a one-time lumpsum investment. Over time, this strategy enables disciplined investing and helps take advantage of rupee cost averaging.
Each SIP instalment buys mutual fund units at the current NAV in mutual funds (Net Asset Value), which represents the per-unit value of the fund’s holdings on that day.
Why should you invest in SIP for long-term wealth creation?
1. Encourages disciplined investing
When you invest in SIP, you automate your investment behaviour. Since a fixed amount is deducted each month, you don’t need to worry about timing the market or delaying your financial goals. This builds consistency and removes emotional decision-making from the investment process.
2. Rupee cost averaging reduces purchase risk
With SIPs, you buy more units when prices are low and fewer units when prices are high. Over time, this may reduce the average cost per unit. This principle, known as rupee cost averaging, helps offset short-term volatility in the market. For example: if the NAV is Rs. 50 this month and Rs. 40 next month, your Rs. 1,000 SIP will buy:
- Month 1: 20 units (1,000 ÷ 50)
- Month 2: 25 units (1,000 ÷ 40)
Over two months, you’ve bought 45 units for Rs. 2,000, averaging Rs. 44.44 per unit. This is better than investing all at Rs. 50.
3. Potential for long-term compounding
SIP investments compound over time, as the returns potentially earned on your investments are reinvested to possibly earn further returns. This compounding effect becomes more visible the longer you stay invested. For example, if a hypothetical investor named Ravi starts an SIP of Rs. 5,000/month for 20 years at an assumed annual return of 10%.
- Total invested: Rs. 12,00,000
- Estimated corpus: Rs. 36,19,934 (approx.)
4. Flexibility in amount and frequency
You can start an SIP with as little as Rs. 500 per month. You may also increase or pause your contributions based on your financial situation. This flexibility is helpful for those with variable incomes or changing goals.
5. Helps in budgeting and cash flow management
Since SIPs are automated and deducted on a fixed date each month, they work like any other monthly financial commitment (like an EMI). This helps you manage cash flows better and ensures that investment becomes a priority.
6. Reduces timing risk in volatile markets
Investors often try to time their investments based on market highs and lows. This is extremely difficult even for seasoned professionals. SIPs reduce this risk by spreading out investments over time, which may reduce exposure to unfavourable price points.
7. Makes investing simple for beginners
For someone just starting out, mutual funds can seem complex. SIPs simplify the process by letting you begin with a small amount and gradually build knowledge. Understanding NAV in mutual funds, risk levels, and fund types becomes easier as you go.
Role of NAV in mutual fund SIPs
NAV in mutual fund SIPs represents the price per unit of the mutual fund scheme. When you invest via SIP, your contribution buys units at the current NAV. The number of units you receive varies based on the NAV at the time of each instalment.
For instance, an SIP of Rs. 2,000 into a fund with NAV Rs. 40 buys 50 units. If the NAV rises to Rs. 50 next month, the same amount buys 40 units. Over time, these unit purchases average out in cost, hence the benefit of SIPs during market fluctuations.
How to start SIP investments
Here are the key step to follow if you want to start your investment journey with SIPs
- Choose a goal: retirement, education, buying a house
- Select a fund category: equity, debt, hybrid
- Set your SIP amount and frequency
- Monitor your investment and rebalance if needed
Final thoughts
Starting early and choosing to invest in SIP can be one of the most effective strategies for building long-term wealth. With benefits such as rupee cost averaging, potential compounding, flexibility, and simplicity, SIPs make mutual fund investing accessible to nearly everyone.
Understanding the role of NAV in mutual fund schemes further helps in tracking your investments and making informed decisions. Before you begin your SIP journey, always consult a financial planner or investment advisor to ensure that your investments align with your financial goals, time horizon, and risk tolerance.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
