SIPs – A Beginner’s Guide
- Lakshay Sharma
- Aug 13
- 6 min read
Updated: Sep 25
Skill Level : Beginner
Investing can feel scary — stock charts, market crashes, and financial jargon all over the place. But what if there was a way to start small, stay consistent, and build wealth quietly in the background? That’s where SIPs (Systematic Investment Plans) come in. SIPs are designed for people who want to start growing their money without worrying about too much about the market. In this guide, you’ll learn what a SIP is, how it works, why it’s beginner-friendly, and how you can start one today — even with just ₹500 a month.
What Is a SIP? (Systematic Investment Plan)
SIP stands for Systematic Investment Plan — a method where you invest a fixed amount of money regularly (it may be weekly, monthly, or quarterly) into a mutual fund or even ETFs in some cases, which we will get to later. It is the most passive and beginner friendly way to start investing.
Think of it like a recurring deposit, but for investments:
• You choose how much you want to invest (e.g., ₹1,000/month).
• You choose when (e.g., the 5th of every month).
• The money gets invested automatically in the mutual fund you selected.
• You just sit back, and watch your wealth grow in the background
The Pillars of SIP
SIPs work so well because they are built on two core principles — Compounding and Rupee Cost Averaging. These are the foundations that make SIPs effective for long-term wealth creation.
Compounding
Compounding is the process where your investment earns returns, and then those returns themselves start earning returns. Over time, this creates a snowball effect, where your money grows faster the longer it stays invested.
For example, you invest ₹1,000 and it grows by 10% in the first year - now you’ll have ₹1,100. In the second year, it grows by another 10%, then the return you earn will be calculated for ₹1,100 and not ₹1,000 — giving you ₹1,210. This way your returns keep rising at an increasing rate and over many years, this effect can turn small, regular investments into large sums without you doing much and letting the system accumulate wealth for you in the background.
Rupee Cost Averaging
Rupee Cost Averaging means investing a fixed amount at regular intervals via SIPs, regardless of the market price. This spreads out your investments over a period of time and you don't have to worry about timing the market. When prices are low, you buy more units; when prices are high, you buy fewer units of the Mutual Fund/ ETF you are invested in.
This way, over time you average out your purchase cost, reducing the risk of investing at the wrong time. This method is particularly helpful in volatile markets, as it smoothens the impact of market ups and downs on your investment.
Why SIPs Are Perfect for Beginners
Start Small
You can begin with as little as ₹500/month. In fact, SEBI is pushing “sachet-sized” SIPs — even ₹100/month — to make investing accessible to everyone.
Hands-Free Automation
Pick a date, set the amount — and forget it. If you set a payment mandate, the amount gets deducted from your account and invested automatically.
Avoid Timing the Market
Markets go up and down, no one can predict them. SIPs invest regularly, so your price averages out over time, reducing risk of volatility.
Power of Compounding
Your money earns returns, and then those returns earn more returns. This is compounding — the core of long-term wealth.
No Emotions Involved
SIPs remove panic or greed from the equation. Stay consistent, no matter what the headlines say.
Example: ₹5,000/month SIP for 10 Years
Let’s say you invest ₹5,000/month for 10 years in a mutual fund that gives 12% annual return (historical average taken for simplicity).
Year | Monthly SIP (₹) | Annual Investment (₹) | Year-End (Corpus) Value (₹) |
1 | 5,000 | 60,000 | 63,833 |
2 | 5,000 | 60,000 | 1,36,163 |
3 | 5,000 | 60,000 | 2,17,787 |
4 | 5,000 | 60,000 | 3,10,936 |
5 | 5,000 | 60,000 | 4,17,153 |
6 | 5,000 | 60,000 | 5,38,327 |
7 | 5,000 | 60,000 | 6,76,756 |
8 | 5,000 | 60,000 | 8,35,192 |
9 | 5,000 | 60,000 | 10,16,894 |
10 | 5,000 | 60,000 | 12,25,586 |
Total | — | 6,00,000 | 12,25,586 |
Total Invested: ₹6,00,000
Total Corpus after 10 years: ₹12,25,586
Wealth Gain: ₹6,25,586
All this without trying to "time" anything and without worrying about market dips. Here the key is long term commitment and discipline.
💎 FinTrack Tip: Upon adding an annual step up of just 10% to your SIP, i.e. Monthly investment value of year 1 = 5,000, year 2 = 5,500, year 3 = 6,050 and so on... the above total corpus value after 10 years, can easily cross 16 Lakhs +
💎 FinTrack Tip: Tools like SIP calculators help you visualize your goal before you start.
How to start a SIP today
You don’t need a financial advisor or any paperwork. Here’s what to do:
Step 1 : Pick a trusted platform: Zerodha Coin, Groww, Paytm Money, Kuvera, etc.
Step 2 : Complete KYC: PAN card, Aadhaar, and a selfie.
Step 3 : Choose a mutual fund: Understand your goal first, then pick a fund accordingly after knowing your risk tolerance and the time horizon of your investment.
Step 4 : Set the amount and date: Monthly frequency is the most common for SIPs. For the amount of your SIP, start with whatever your are comfortable at.
💎Optional but recommended: If your income grows, so should your investments. Add step ups annually to your SIP value, as per your budget and goals.
Step 5 : Link your bank: Set up a payment mandate. Auto-debit ensures consistency in long-term. You can easily find an option for "Mandate" in every app. As an alternative, you can also add money manually on the date of your SIP order, via payment gateways provided in the app.
That’s it. You’ve just started your investing journey!
Common Questions Beginners Ask
Q: What happens if I miss a SIP?
A: You will still have a time of about 2-3 days to complete the payment even if your SIP date passes, else the platform will skip that month. Just make sure your bank account has sufficient funds next time. Consistency is key to long term wealth generation.
Q: Can I stop a SIP anytime?
A: Yes, you can pause, increase, decrease, or stop anytime. SIPs are fully flexible.
Q: Are returns guaranteed?
A: No, All investments are subject to market risk. However risk is not equal in all funds. Risk broadly depends on 2 factors. 1. Market Segment Market segments refer to different categories of financial markets or assets where capital is allocated. We will talk about Debt and Equity for now. Debt is considered more stable than equity, which might be good for someone who's goal may be retirement planning. E.g. Bonds, Debentures, Debt Mutual Funds Whereas Equity generates more returns and also comes with more risks, it may be better for someone who is young and can take risk. E.g. Shares, ETFs, Equity Mutual Funds 2. Market Capital. This refers to the capital of the companies included in the fund, they are broadly categorized between Large cap, Mid cap or Small cap.
Category | Official SEBI Ranking | Market Cap Ranges (Indicative Values) | Volatility Level | Risk-to-Return Ratio | Key Traits |
Large-Cap | Top 1–100 Companies | ₹20,000 cr and above | Low–Moderate | Low risk → Moderate return | Established leaders, high liquidity, stable earnings |
Mid-Cap | Companies between 101–250 | ₹5,000 – ₹20,000 cr | Moderate–High | Moderate risk → High return | Balanced growth & stability, potential to become large-cap |
Small-Cap | Companies after 251+ | Below ₹5,000 crore | High | High risk → Very high return | High growth potential, volatile, sentiment-driven |
💎 FinTrack Tip: Always have a portfolio that is diversified across different market capitals, as well as market sectors, avoid over-concentration in any one segment, capital or sector
Q: Can I withdraw my money anytime?
A: Yes, unless you’re in a lock-in scheme like ELSS (3 years period). Most SIPs are fully liquid. In case of Mutual funds, make sure to check the exit load of your specific fund if you are planning to hold it for the short term (less than a year).
Final Thoughts: Start Small, Stay Consistent
SIPs are the simplest way to grow wealth over time, they're perfect for students, young professionals, retirees or anyone who wants to invest passively. The earlier you start, the more time compounding has to work in your favour.
The next time your salary or pocket money hits, allocate some part to a SIP, your future self with thank you.
~ Lakshya Sharma
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