It is the 5th. The salary landed two days ago, and at some point this morning ₹5,000 left your account without you doing anything. That is the point of a SIP, and it is a good one. Now try a small experiment: without opening an app, say what that ₹5,000 is invested in.
Most people answer with the schedule: "it goes into my SIP". That answer describes when and how much. It says nothing about what you own. The gap between those two things is where most confusion about SIPs begins.
What a SIP actually is
A Systematic Investment Plan is an instruction. You tell a fund house to take a fixed amount from your bank account on a fixed date, usually every month, and to buy units of a scheme you have chosen. The debit runs on a mandate you sign once, so nothing needs remembering after that.
That instruction has three settings: the amount, the date and the frequency. It can be raised, lowered, paused or stopped. What it cannot do is decide anything about the investment itself.
The decision hiding behind the schedule
Every SIP points at one mutual fund scheme, and the scheme is the investment. It decides what your money is exposed to: shares of listed companies, government securities, company bonds, or a mix. It decides how much the value can move in a bad year, which is why every scheme carries a riskometer label, from low to very high. And it decides the running cost, the expense ratio, taken from the scheme's assets every year.
Two people can both say "I have a ₹5,000 SIP" and own completely different things. One may hold a liquid fund whose value barely moves; the other an equity fund that can fall sharply in a single month. Same schedule, different investments.
What the schedule is good at
None of this makes the schedule unimportant. A SIP does two useful things well. It removes the monthly decision, which is where most people stall: "I'll start when markets settle" is a sentence that can last for years. And because the same amount goes in at different prices, it buys more units when prices are lower and fewer when they are higher.
What it does not do is protect you from losses. If the scheme's value falls and stays down, a schedule of purchases is still a schedule of purchases into something worth less. The schedule is discipline, not insurance.
Four questions to ask before the 5th
- What does this scheme hold? Its category and objective are in the scheme documents. If the answer is "I'm not sure", that is the first thing to fix.
- How much can it fall? Read the riskometer, and look at how far the category has fallen in bad years before. Then ask whether you would keep paying in if it did.
- Why this scheme for this goal? Money you need in two years and money for a retirement twenty-five years away rarely belong in the same kind of scheme.
- What does it cost, and who is paid? Every scheme has an expense ratio. Regular plans include a commission to the distributor; Direct plans do not, and you can buy those without anyone's help. Ask your distributor what they earn. We will tell you.
The appointment and the choice
A SIP is a good habit attached to a decision. Spend your attention on the decision, the scheme, and let the habit do the rest. If you would like to go through the SIPs you already have, question by question, you can talk to us. If you are new to the idea, our page on SIPs in Guwahati covers the practical steps.
Choose the scheme with care. The SIP just keeps the appointment.