SIP (Systematic Investment Plan): How Mutual Fund SIPs Work
Independent guide. We are not part of SEBI, AMFI or any mutual fund, and we never ask for your account details, PIN or OTP. General information only, not investment advice.
SIP means Systematic Investment Plan. You invest a fixed amount in a mutual fund scheme at regular intervals, usually monthly, by automatic debit from your bank account. Each instalment buys units at that day's NAV. More units when the NAV is low, fewer when it is high. Returns are not guaranteed, and you can stop any time.
Mutual fund investments are subject to market risks, read all scheme related documents carefully.
- What it is
- A way to invest in a mutual fund, not a product of its own
- Regulator
- SEBI; fund houses are members of AMFI
- Frequency
- Daily, weekly, fortnightly, monthly or quarterly, as the scheme offers
- Typical minimum
- Set by each scheme, often ₹500 a month (AMFI's example); some schemes allow less
- Price you get
- The scheme's NAV on the business day your money reaches it
- Stop
- Any time; takes effect within 10 calendar days
- Complaints
- Fund house first, then SEBI's SCORES
How an SIP works: amount, NAV and units
- NAV (Net Asset Value) is the price of one unit. It is the scheme's assets minus liabilities, divided by the units outstanding, and is worked out every business day.
- Units: each instalment buys amount ÷ NAV units. ₹2,000 at a NAV of ₹20 buys 100 units.
- Which day's NAV: for equity and debt schemes (other than liquid and overnight funds), you get the closing NAV of the business day on which your money reaches the scheme before the 3 pm cut-off. After 3 pm, the next business day's NAV.
- Value: your holding is worth units × current NAV. It goes up and down with the market.
- Statement: each month with a transaction you get a Consolidated Account Statement (CAS) by the 15th of the next month, listing units bought.
Worked example (sample)
Sample only, with made-up NAVs; not a forecast. An SIP of ₹2,000 a month for four months:
| Month | Amount | NAV (sample) | Units bought | Total units |
|---|---|---|---|---|
| 1 | ₹2,000 | ₹20 | 100 | 100 |
| 2 | ₹2,000 | ₹16 | 125 | 225 |
| 3 | ₹2,000 | ₹25 | 80 | 305 |
| 4 | ₹2,000 | ₹20 | 100 | 405 |
- Invested: ₹8,000 for 405 units, so your average cost is ₹8,000 ÷ 405 = about ₹19.75 a unit. The average of the four NAVs is ₹20.25.
- Value if the NAV is ₹20: 405 × ₹20 = ₹8,100.
- Value if the NAV falls to ₹15: 405 × ₹15 = ₹6,075, a loss of ₹1,925. An SIP does not prevent losses.
- Real statements show units to three decimal places, and the amount may be reduced by any stamp duty or charges.
Rupee-cost averaging, explained neutrally
Because the amount is fixed, you automatically buy more units when the NAV is low and fewer when it is high, as in the example above. Over time your average cost per unit is spread across many prices instead of depending on one day.
What it does not do: in AMFI's words, rupee-cost averaging "does not assure profit". It does not protect you from losses in a falling market, and a lump sum can do better or worse depending on how prices move. What an SIP does give you is a regular, disciplined habit.
How to start an SIP
- Complete KYC once. First-time mutual fund investors must complete KYC. It is held by a KRA; once it shows as validated, you can invest with any fund house without repeating it. You need your PAN.
- Choose a scheme and plan. Read the scheme's Key Information Memorandum (KIM) and risk-o-meter. Pick the Direct or Regular plan (see the tabs below) and the Growth or IDCW option.
- Choose where to apply: the fund house's (AMC's) website, app or branch; MF Central (mfcentral.com, the platform of the registrars CAMS and KFintech); or a SEBI-registered intermediary or AMFI-registered distributor.
- Set amount, frequency, SIP date and end date.
- Approve the auto-debit mandate: a NACH e-mandate through net banking or debit card, or UPI AutoPay with your UPI PIN. Under RBI rules, mutual fund instalments up to ₹1 lakh each can be debited under an e-mandate without a fresh approval each time.
- Add a nominee or opt out, and keep the confirmation. Units appear in your statement after each instalment.
Direct plan vs Regular plan
Every scheme has both plans for the same portfolio, each with its own NAV. Direct plans have been compulsory since 1 January 2013.
- How you invest: straight with the fund house (website, app, branch) or through MF Central, without a distributor.
- Cost: lower expense ratio, because no distributor commission is paid from the plan. Over many years the gap compounds.
- Advice: none included. You choose and review schemes yourself, or pay a SEBI-registered investment adviser separately.
- An SIP registered in a Regular plan without any distributor code is processed in the Direct plan, according to scheme documents.
- How you invest: through a mutual fund distributor, bank or other intermediary, whose ARN is on the form.
- Cost: higher expense ratio, because the fund house pays the distributor's commission from the plan. You pay no entry load; entry loads are banned.
- Disclosure: your half-yearly CAS shows the commission paid on your investment and the plan's average TER.
- Moving to Direct: a switch is a redemption and a fresh purchase. Many schemes waive exit load on it; check the scheme document and the tax effect first.
Choosing the SIP date
- Fund houses let you pick a date; many offer any date from 1 to 31. Pick one a few days after your salary arrives so the debit doesn't fail.
- If the date is a non-business day, or doesn't exist in that month, scheme documents say the instalment is processed on the next business day or the month's last business day. Rules differ, so check yours.
- The first instalment can take a few weeks while the mandate registers.
Missed or failed instalments
- No units that month: if the debit fails, for example for lack of balance, no units are bought for that instalment. Units you already hold stay invested.
- Automatic cancellation: under a SEBI letter of 3 Jan 2024 on uniform SIP cancellation, an SIP is cancelled after 3 consecutive failed debits for daily, weekly, fortnightly and monthly SIPs, and 2 for bi-monthly, quarterly and longer ones.
- Bank charges: your bank may charge for a returned mandate debit (see NACH). Some fund houses' documents say they may recover related bank charges.
Pausing, stopping or changing an SIP
| You want to | What happens |
|---|---|
| Stop | Ask the fund house or the platform you used. Cancellation takes effect within 10 calendar days of your request; instalments due before then are still processed. Your units stay invested until you redeem them. |
| Pause | Offered by many fund houses, on their own terms. Example: UTI Mutual Fund allows a pause only after 6 instalments, at most twice, for 1 to 6 months, requested 10 days before the next debit. Debits restart automatically. |
| Increase each year | Many schemes offer a top-up (step-up) option when you register. |
| Change amount or date | Rules differ between fund houses: some let you change an existing SIP, others ask you to stop it and register a new one. Check your fund house's SIP terms. |
| End the mandate | Stopping an SIP may leave the bank mandate registered. Revoke it in your UPI app or through your bank if you no longer need it. |
| Withdraw money | Redeem units any time in open-ended schemes (except lock-in schemes). Proceeds must reach your bank within 3 working days; late payment earns you interest at 15% a year. |
Costs: exit load and expense ratio (TER)
Exit load
- A fee some schemes charge if you redeem within a set period, for example 1% within one year. It is in the scheme's Scheme Information Document (SID).
- For an SIP, the period counts from the allotment date of each instalment, and units are generally redeemed first-in, first-out.
- SEBI's Mutual Funds Regulations, 2026 cap exit load in open-ended schemes at 3% of NAV. The load is credited back to the scheme.
- Sample: 80 units redeemed at NAV ₹20 = ₹1,600; a 1% exit load is ₹16, so you get ₹1,584 (before any tax).
Total expense ratio (TER)
- The yearly cost of running the scheme, as a percentage of its daily net assets. It is taken out of the scheme every day and is already reflected in the NAV; you are not billed separately.
- Rough sample: at a 1% TER, about ₹1,000 a year goes in expenses on an average holding of ₹1 lakh.
- From 1 Apr 2026, SEBI caps a "base expense ratio"; the TER is that plus brokerage, transaction costs and statutory levies such as GST.
| Open-ended scheme (part of assets) | Base expense ratio cap, equity | Cap, other than equity |
|---|---|---|
| First ₹500 crore | 2.10% | 1.85% |
| Next ₹250 crore | 1.90% | 1.65% |
| Next ₹1,250 crore | 1.60% | 1.40% |
| Next ₹3,000 crore | 1.50% | 1.25% |
| Next ₹5,000 crore | 1.40% | 1.15% |
| Next ₹40,000 crore | 0.05% lower for every ₹5,000 crore | |
| Balance | 0.95% | 0.70% |
| Index funds and ETFs | 0.90% | |
These are maximums; Direct plans charge less than Regular plans. Source: SEBI (Mutual Funds) Regulations, 2026, regulation 66(7).
Risk-o-meter
- Every scheme shows a risk-o-meter with six levels: Low, Low to Moderate, Moderate, Moderately High, High, Very High.
- It is reviewed every month and published on the fund house and AMFI websites with the portfolio within 10 days of month-end. Unitholders are told when it changes.
- Find it on the application form, KIM, SID, factsheet and adverts. Choose a level you are comfortable seeing fall in value.
Chhoti SIP of ₹250
Following a SEBI letter of 20 Feb 2025, some fund houses offer a "Chhoti SIP" of ₹250 an instalment in selected schemes for first-time mutual fund investors. Example terms (Trust Mutual Fund): up to three such SIPs, each with a different fund house; Growth option only; monthly or fortnightly; 60 instalments intended, but you can withdraw early (exit load may apply).
Tax
Gains on redeeming units, and any IDCW payouts, can be taxable, and the rules differ by scheme type and holding period. The Income-tax Act, 2025 replaced the 1961 Act from 1 Apr 2026, so check incometax.gov.in before you file your ITR. Fund houses may deduct TDS on some payouts.
Problems and complaints
- Fund house first: contact the AMC's investor service centre or investor relations officer (details in the SID and on its website).
- SEBI SCORES: not resolved? File at scores.sebi.gov.in or the SCORES app within one year of the problem. The fund house must reply within 21 calendar days. If unhappy, ask for a review within 15 days; it goes to a first review and then to SEBI.
- Helpline: SEBI's toll-free numbers 1800 266 7575 or 1800 22 7575, 9 am to 6 pm, in eight languages.
- Bank problems with the auto-debit itself go to your bank, and then the RBI Ombudsman.
Stay safe
- Invest only through the fund house, MF Central, or SEBI-registered intermediaries and AMFI-registered distributors. Check a distributor's ARN on AMFI's distributor search.
- No mutual fund guarantees returns. Treat "assured" or "fixed" SIP returns as a red flag.
- Your money always goes to the scheme's own account, never to a person's account or UPI address.
- Never share your OTP, UPI PIN or net banking password. Fraud? Call 1930 or report at cybercrime.gov.in.
History
Unit Trust of India, India's first mutual fund, is set up.
SEBI fully revises its mutual fund regulations (first issued in 1993).
Every scheme must offer a Direct plan, under a SEBI circular of 13 Sep 2012.
SEBI introduces the six-level risk-o-meter.
RBI lets mutual fund e-mandate debits up to ₹1 lakh run without fresh approval each time.
SEBI sets uniform SIP cancellation rules (3 or 2 failed debits; 10 days to cancel).
SEBI letter enables the ₹250 Chhoti SIP.
SEBI (Mutual Funds) Regulations, 2026 replace the 1996 regulations.
FAQs
What is the full form of SIP?
Systematic Investment Plan: investing a fixed amount in a mutual fund scheme at regular intervals.
Is an SIP safe? Does it guarantee returns?
No guarantee. An SIP only decides how you invest; the risk depends on the scheme. Mutual fund investments are subject to market risks, and your investment can fall in value.
How many units will my SIP buy?
Instalment ÷ NAV. For example, ₹2,000 at a NAV of ₹25 buys 80 units. The NAV is that of the business day your money reaches the scheme before 3 pm.
What happens if I miss an SIP instalment?
No units are bought that time. After 3 consecutive failed debits (monthly, weekly, fortnightly or daily SIP) or 2 (quarterly), the SIP is cancelled. Your bank may charge for the failed debit.
Can I stop my SIP at any time?
Yes. It takes effect within 10 calendar days. Stopping does not sell your units; redeem them separately if you want the money.
What is the difference between direct and regular plans?
Same portfolio, different cost. A Direct plan has no distributor commission, so a lower expense ratio and a higher NAV. A Regular plan pays a distributor from the plan's expenses.
Is there a charge for starting or stopping an SIP?
No entry load is allowed. Costs are the scheme's expense ratio, which is built into the NAV, and any exit load if you redeem early.
Do I need KYC for an SIP?
Yes. Complete KYC once; it is held by a KRA and works across all fund houses.
Where do I complain about my SIP?
The fund house first, then SEBI SCORES at scores.sebi.gov.in. The fund house must reply within 21 days.
Official sources
- SEBI – FAQs for Mutual Fund Investors (updated 31 Aug 2024): NAV, cut-off times, SIP, direct plan, exit load, expense ratio, CAS, complaints (accessed 31 Oct 2026)
- SEBI (Mutual Funds) Regulations, 2026, amended up to 7 Jul 2026: exit load cap (reg. 44), expense limits (reg. 66–67) (accessed 31 Oct 2026)
- SEBI – Circular CIR/IMD/DF/21/2012, 13 Sep 2012 (direct plans) (accessed 31 Oct 2026)
- SEBI – Product labelling in mutual fund schemes: Risk-o-meter, 5 Oct 2020 (accessed 31 Oct 2026)
- SEBI Investor – Understanding the Riskometer (accessed 31 Oct 2026)
- SEBI Investor – Securities market booklet (monthly risk-o-meter review) (accessed 31 Oct 2026)
- SEBI – SCORES FAQs (time limits, reviews, helpline) (accessed 31 Oct 2026)
- AMFI (Mutual Funds Sahi Hai) – Systematic Investment Plan and rupee-cost averaging (accessed 31 Oct 2026)
- AMFI – Locate a mutual fund distributor (ARN search) (accessed 31 Oct 2026)
- UTI Mutual Fund SID (Nov 2025, on AMFI portal) – SEBI letter of 3 Jan 2024 on SIP cancellation; SIP pause terms (accessed 31 Oct 2026)
- Sundaram Mutual Fund SID (filed with SEBI) – SIP dates, exit load per instalment, cancellation (accessed 31 Oct 2026)
- TRUST Mutual Fund SAI (9 Oct 2026, on AMFI portal) – Chhoti SIP under SEBI letter of 20 Feb 2025 (accessed 31 Oct 2026)
- RBI – Processing of e-mandates for recurring transactions, 12 Dec 2023 (accessed 31 Oct 2026)
- MF Central (CAMS and KFintech) (accessed 31 Oct 2026)
- Income Tax Department – e-filing portal (accessed 31 Oct 2026)
- Ministry of Home Affairs – National Cybercrime Reporting Portal (accessed 31 Oct 2026)
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