Loading fund NAVs…
A SIP is simply an instruction to put a fixed sum into a mutual fund scheme at a fixed interval, most commonly monthly. Nothing about the fund changes — only how you enter it does. Here's what one instalment actually does.
₹5,000 invested on the same date each month, against a scheme whose NAV moved around — this is what "rupee cost averaging" looks like as numbers.
| Month | NAV (₹) | Amount (₹) | Units allotted | Units bought |
|---|---|---|---|---|
| January | 20.00 | 5,000 | 250.00 | |
| February | 22.00 | 5,000 | 227.27 | |
| March | 18.00 | 5,000 | 277.78 | |
| April | 24.00 | 5,000 | 208.33 | |
| May | 19.00 | 5,000 | 263.16 | |
| June | 21.00 | 5,000 | 238.10 | |
| Total | — | 30,000 | 1,464.64 |
Fixed instalments buy more units when the NAV dips and fewer when it rises, which is why the average cost per unit can land below the simple average of the NAVs. It does not protect against a fund that keeps falling, and it does not guarantee a return.
Four things happen in sequence, mostly without you noticing — until the units show up in your statement.
A one-time auto-debit mandate is registered with your bank through NACH, or through UPI Autopay for smaller recurring amounts. This is what lets each instalment go through without you approving it manually every time.
On your chosen date — most fund houses offer fixed options such as the 1st, 5th, 10th, 15th, 20th or 25th — the fixed amount is pulled from your bank account.
If the balance is short, the instalment simply fails for that monthOnce the amount is realised, units are allotted based on the scheme's Net Asset Value for that business day — not the date you set up the SIP, and not an average of any kind.
An allotment statement follows by email, and the units appear in your consolidated account statement (CAS), each instalment recorded separately with its own date and NAV.
"SIP" describes the rhythm, not the amount — these are the common ways that rhythm gets set up.
The same amount, on the same date, for as long as it runs. This is the default most people mean when they say "SIP" — no fixed end date unless you set one.
The instalment amount increases automatically at a set frequency, usually once a year, either by a fixed sum or a fixed percentage — useful if you expect your income to rise but don't want to remember to change it manually.
Some platforms let you vary the amount for a given month within limits you set in advance, rather than debiting an identical figure every time.
No end date is specified at set-up, so it continues until you actively pause or cancel it. Most SIP forms default to this unless a specific number of instalments or an end date is entered.
An instalment fires only when a chosen index level or NAV is reached, rather than on a fixed date. It's offered by a handful of platforms, but it works against the whole point of a SIP, which is to remove timing decisions — most people are better served by a Regular SIP.
Because every SIP instalment buys units on a different date, each one starts its own holding-period clock — an instalment from 14 months ago and one from last month can be taxed differently on the same redemption date. Rates below apply from 23 July 2024 onward.
Applies to schemes that hold at least 65% in domestic equity. No indexation benefit is available on the 12.5% rate. Surcharge and cess apply on top where relevant.
For units acquired after 1 April 2023, gains are added to your total income and taxed at your slab rate regardless of how long you held them, following the Finance Act, 2023.
Mutual fund investments are subject to market risk. Read all scheme-related documents carefully. Tax treatment can change with future Finance Acts — the figures above reflect rules in force as of this year.
