Is creating wealth through Systematic Investment Plan (SIP) a hoax?

Most people tend to look at systematic investment plans or SIPs as one of the better investment options out there, especially for those who do not wish to invest directly in the stock market. Let us then see what SIPs are all about.

What is a systematic investment plan?

A method of investment, a systematic investment plan is an option that allows you to invest a specific amount at regulated intervals or frequencies, typically monthly, in various instruments, including fixed deposits and mutual funds. However, SIPs are popularly associated with mutual funds as compared to any other instrument.

You can choose to invest even as little as Rs. 500 per month, and on a specified date the same amount will be auto debited from your bank account, once you provide standing instructions for the same. Investors tend to make smaller investments in an SIP as compared to having to invest a larger amount in one go.

How does a Systematic Investment Plan (SIP) help?

For starters, investing in SIP inculcates financial discipline. When you necessarily sign up to invest a certain amount each month, you are obligated to save up that money, which you otherwise may have spent instead of saving.

Remember, it is a lack of discipline that is in fact one of the reasons why people tend not to meet their financial goals in the long run. With an SIP and the fixed commitment attached with it, an investor typically stays on track with their investment goals.

Very often, other commitments get in the way, and we as individuals slip-up on saving up funds for that proverbial rainy day. When you invest in an SIP however, given that you can start off with a small sum of money, it lightens your overall financial burden, and is incentive enough to stay invested.

However, it is not a fair comparison to equate SIPs with investing in a lump sum. Both have their own pros and cons, but for a smaller investor looking to minimize market risks, an SIP may be a safer bet.systematic investment plan-mutual-fund-sip

Rupee cost averaging is one of the key reasons why investors look at SIPs so favorably. With this method, market timing at investment is deemed to be irrelevant, as the investment amount is fixed.

Let us take an example. If the markets are high, then the net asset value (NAV) on a mutual fund is likely to rise, and hence the number of units the SIP will yield for that particular period would be lower. Conversely however with a turbulent market the NAV tends to slide and the number of units you get is higher. Over the period of your investment therefore, these market fluctuations even out and give you an average purchasing cost.

What are the disadvantages of an SIP?

Remember though that investing in a SIP is not a magic mantra. The investment option although flexible has its own share of pitfalls.

For one, while the market timing may not matter much as compared to say a direct investment in the stock market, a SIP will also ultimately perform only when the market is conducive. Mutual fund managers are therefore constantly on the job to track markets and review how their funds are doing, and only if these conditions are favorable, will your investment also see some positive returns.

Further, SIPs do not necessarily generate the best results. The ideal investment scenario would be one wherein you invest when the market is low, and exit when the market is high. This may not be possible over a long investment period and hence while they may minimize your cost of investment that does not mean that the returns you get would be optimal.

Another thing to watch out for is to make sure that you invest in the right SIP. A poorly performing fund is unlikely to generate favorable returns, irrespective of how you time your purchase, and that includes availing of a SIP option.

So before you invest, do your homework and make sure you select the right mutual fund before you sign up for an SIP. You also need to monitor and track its performance on a continuous basis.

In conclusion

There is no surefire method of investing. A SIP is a tool that comes with its upside, but as a savvy investor, you should always weigh both the pros and cons of any investment you wish to make. A SIP works best when you have a long time frame in which to stay invested and are not looking for immediate, get rich quick returns. If you are willing to park your funds until the market phases, whether bull or bear, stabilizes, a SIP is worth taking a shot at.

However, if nothing else, a SIP enforces financial discipline, which can never be a bad thing – and is possibly one good enough reason to avail of a SIP.

Long term wealth creation has one simple mantra – ‘start investing early. Even if your initial investment is small, give yourself time and steadily increase your saving month on month. A far-sighted approach is what works well when your goal is to create wealth for yourself and your dependents.

Of course, do keep in mind that investment alone cannot build you wealth. Staying debt free too is equally important. This can be easily achieved by keeping tabs on the number of loans and credit cards you have and how you service them, as well as tracking your credit report.

To conclude, creating wealth through SIPs while not a hoax, it is also not a surefire way of creating wealth. However, for an investor, it is an option that if chosen well, can yield positive returns over a long-term investment horizon.

This guest post is authored by Arun Ramamurthy.

About the Author

Arun - Credit Sudhaar

Arun is an IIM alumnus with work experience at leading global banks in India. He is the co-founder of Credit Sudhaar, a company which aims to spread awareness about importance of credit health and help people achieve their financial objectives.

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Kindly note that is not associated with Credit Sudhaar. This post is for information purposes only. This is a guest post and NOT a sponsored one. We have not received any monetary benefit for publishing this article. 

(Post published on : 21-November-2016) (Image courtesy of jk1991 at

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  • Suresh says:

    A nice, informative and useful post. Thank you. Suresh

  • Anand says:

    You are very right. SIP is not a get rich quick scheme.

    In my opinion in the very long term (30 to 40 years) SIP in low-cost ETFs will surely generate significant wealth.

    But unfortunately, a majority of the investors don’t have patience.

    In the end a very thought-provoking article. I liked it very much.

    Thank you,



  • RANJEET says:

    I want to deduct 10000 rupees as SIP in two different products. Would you please tell me,whether this is a wise decision or not?

  • Nilesh Kumar says:

    Hello Sir,
    I am planning to invest in mutual funds and SIPs, (I am 28 years old and working in a private company). I dont have any exposure in this. So please suggest, How do I start? Which mutual fund is the best option? Initially i would like to start with SIP (rs.5000 per month)and i can invest at least for 3-5 years. SO, How should i start with – regular plan or direct plan, through Web portal like Funds India/scripbox/myuniverse or any local agent.
    pls help me i am planning for a long time but i am not able to finalize. Thanks!

  • Rishika says:

    SIP works on the principle of regular investments. It is like your recurring deposit where you put in a small amount every month. It allows you to invest in a MF by making smaller periodic investments (monthly or quarterly) in place of a heavy one-time investment Thus, you can invest in an MF without altering your other financial liabilities.

  • Saurin says:


    I want to invest Lumpsum in Debt MF for my different short term goals (1-3Yrs), Can you suggest some Debt fund schemes for both 1 & 3yrs period? Also tommorow there are chances of rate cut, so it may be good for Debt funds , is it right?


  • jake says:

    i would like to invest one lakh rupees lumpsum in any of the top mutual fund to save my tax.can you suggest a good one.

  • vijay says:


    I have a lumpsum amount of 3L in my account, Pls suggest me whether to invest full amount in mutual funds lumpsum or in SIP,

    pls advise some good funds,
    my investment horizon is about 5 years,


  • Janani says:

    I am plnning to invest in birla sunlife mip ii wealth 25 and dynamic bond, i would stay invested for 3 yrs. 1.5 lac in each. Is it a good idea ? Should i do Sip or can i do lump sum.
    Also is this the right time when the bond rates are high ?

  • Sachin says:

    Thanks for sharing this valuable article. My query is regarding the statement which i read many times: “wherein you invest when the market is low, and exit when the market is high”
    Is it good idea to redeem the fund in between our goals if the market is high?
    I mean if i am investing for my daughter’s marriage (about 12 years from now), should i redeem my equity oriented funds when the markets are high and invest them again when market gets down?

    • Sreekanth Reddy says:

      Dear Sachin,
      That particular sentence is an ideal scenario and a generic statement.
      But, I always beleive that there is no thumb-rule or sure-fire method of investing.
      If my goal is say 5 years from now, and when the market falls drastically, and if I believe that this can be a temporary volatility, I go ahead and invest additional amounts in my existing portfolio.

      High or Down – No one can confidently say the exact LEVELS until they become history.
      Read: My Mutual Fund Portfolio – My MF Picks

  • Tarun says:

    I understand SIP just gives the discipline to invest regularly. It also provides rupee cost averaging but only up to a level. I also follow the SIP approach to have regular weekly/monthly investments but to get max benefit on rupee cost averaging, I make relatively heavy lump sum investments as and when market goes down. Any views/suggestions are most welcome.

    • Manja says:

      If you are watching the markets regularly and do invest lumpsum at particular intervals (when markets go down), then you may not want to do SIP, because the SIP investments when markets are high is actually doing negative effect to your lumpsum. You can calculate how much you want to invest in a year and plan out 3 -4 different timescale when markets are down.

      • Sreekanth Reddy says:

        Dear Tarun/Manja,
        Be it Lump-sum or SIP, I believe that there is no sure-fire method of investing. The markets are influenced by so many factors which may not be in our control to deal with.
        Personally, I follow SIP + manual lump sum installments 🙂
        Kindly read : My MF portfolio picks..

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