SIP: how it works
What happens on each instalment date, what averaging does, and what it does not do
Industry figures for August 2026
Verified 12 October 2026
For training and education only. Not investment advice.
Trainer notes
Ask the room: a SIP of ₹6,000 a month runs for six months. The NAV starts at ₹20, dips, and ends at ₹20. Has the investor gained, lost or broken even? Take a show of hands and keep the answer for slide 4.
A SIP is a way of buying mutual fund units: a fixed amount, on a fixed date, at that day's NAV.
It is a method, not a product. The scheme it buys carries the same risks whether the units are bought by SIP or in one go.
Trainer notes
SIP stands for Systematic Investment Plan. AMFI describes it as an investment plan, or methodology, in which one invests a fixed amount in a scheme at fixed intervals. NAV is net asset value, the value of one unit of a scheme.
Three parts of every SIP
The mandate
The investor authorises the bank to pay each instalment automatically, through NACH or UPI AutoPay. It is set up once.
The amount and date
The investor picks the amount, the date and the interval, usually every month. Each scheme sets its own minimum amount.
The units
Each instalment buys units at the NAV that applies that day. A lower NAV buys more units. A higher NAV buys fewer.
Take-away: Stamp duty of 0.005% comes off each instalment before the units are allotted.
Source: SEBI Master Circular, 20 March 2026; AMFI SIP data page; Indian Stamp Act, 1899 (stamp duty).
Trainer notes
NACH is the National Automated Clearing House. The NAV that applies is that of the day the money is available to the scheme before the cut-off time, so it can be a day later than the debit. AMFI says an instalment can be as small as ₹500 a month, and ₹250 under 'Chhoti SIP'; the figure for any scheme is in its Scheme Information Document. Mandate limits and activation times depend on the bank.
Six instalments, one average cost
A SIX-MONTH SIP
A SIP of ₹6,000 a month runs for six months.
NAV on the six dates: ₹20, ₹16, ₹12, ₹15, ₹16 and ₹20.
Stamp duty is ignored to keep the numbers round.
- Units bought: 300 + 375 + 500 + 400 + 375 + 300 = 2,250 units.
- Amount paid: 6 × ₹6,000 = ₹36,000.
- Average cost = ₹36,000 ÷ 2,250 units = ₹16.00 a unit.
- The simple average of the six NAVs is ₹99 ÷ 6 = ₹16.50. The cost is lower because more units were bought at the lower NAVs.
Result: A fixed amount buys more units when the NAV is low. That pulls the average cost per unit down.
Illustration with an invented scheme and assumed NAVs. Not a forecast.
Trainer notes
This is rupee-cost averaging: average cost per unit = total amount invested ÷ total units bought. When the NAVs differ, the average cost is below the simple average of the NAVs; when the NAV is the same every time, the two are equal. With stamp duty, the first instalment would buy (₹6,000 − ₹0.30) ÷ ₹20 = 299.985 units.
Same rupees, different units
| Units bought | |
|---|---|
| 1: ₹20 | 300 |
| 2: ₹16 | 375 |
| 3: ₹12 | 500 |
| 4: ₹15 | 400 |
| 5: ₹16 | 375 |
| 6: ₹20 | 300 |
Read the chart
- Each bar is one instalment of ₹6,000. The label shows the instalment number and the NAV that day.
- The tallest bar is the date the NAV was lowest: ₹12 bought 500 units.
- At the sixth NAV of ₹20, the 2,250 units are worth ₹45,000. The amount paid was ₹36,000.
- That gain came from this path of NAVs. Another path gives another result.
Illustrative data from the example on the previous slide. Assumed NAVs; stamp duty ignored.
Trainer notes
Answer to the opening question: on this path the investor is ahead by ₹9,000 although the NAV ended where it began, because most units were bought below ₹20. Stress the last point on the slide before moving on. The next slide shows a path where the same SIP loses money.
SIP and lump sum on three paths
| NAV on the six dates | SIP: ₹6,000 on each date | Lump sum: ₹36,000 on date 1 |
|---|---|---|
| Falls, then recovers: ₹20, 16, 12, 15, 16, 20 | 2,250 units, worth ₹45,000. Gain of ₹9,000. | 1,800 units, worth ₹36,000. No gain and no loss. |
| Falls throughout: ₹30, 25, 24, 20, 16, 15 | 1,765 units, worth ₹26,475. Loss of ₹9,525. | 1,200 units, worth ₹18,000. Loss of ₹18,000. |
| Rises throughout: ₹15, 16, 20, 24, 25, 30 | 1,765 units, worth ₹52,950. Gain of ₹16,950. | 2,400 units, worth ₹72,000. Gain of ₹36,000. |
Take-away: Average cost is below the simple average NAV. It does not assure a profit or prevent a loss.
Illustration with assumed NAVs, valued at the NAV on the sixth date. Stamp duty ignored. Not a forecast.
Trainer notes
Describe this neutrally. A SIP spreads purchases over many dates and NAVs; a lump sum is invested on one date at one NAV. Which ends ahead depends on the path the NAV takes afterwards, which nobody knows in advance. The table ignores whatever the SIP investor's waiting money earned elsewhere. Many investors invest from monthly income and do not have a lump sum to compare.
A step-up SIP
10% MORE EACH YEAR
A SIP starts at ₹10,000 a month.
The investor asks for a step-up of 10% once a year.
Compare it with a level SIP of ₹10,000 a month over three years.
- Year 1: 12 × ₹10,000 = ₹1,20,000.
- Year 2: 12 × ₹11,000 = ₹1,32,000. Year 3: 12 × ₹12,100 = ₹1,45,200.
- Total paid in three years: ₹1,20,000 + ₹1,32,000 + ₹1,45,200 = ₹3,97,200.
- The level SIP pays 36 × ₹10,000 = ₹3,60,000. The step-up SIP puts in ₹37,200 more.
Result: A step-up changes how much is invested. It does not change how an instalment works, or the risk.
Illustration with assumed amounts. It shows money paid in, not what the units are worth.
Trainer notes
A step-up, also called a top-up, raises the instalment at set intervals by a fixed amount or a percentage. The terms differ between fund houses. Do not quote a projected value for a step-up SIP without stating the assumed rate and labelling it an assumption.
Each instalment has its own clock
TWELVE INSTALMENTS
Equity-oriented scheme. A SIP on the 10th of each month of 2026.
Assumed exit load: 1% within 12 months.
All units are redeemed on 15 February 2027.
- The January and February 2026 instalments have been held for more than 12 months. The other ten have not.
- Exit load: none on the units from the first two instalments, 1% on the units from the other ten.
- Tax: a gain on the first two is long-term. A gain on the other ten is short-term.
- As of October 2026: long-term gains are taxed at 12.5% above ₹1.25 lakh a year, short-term gains at 20%.
Result: The holding period runs from each instalment's own date, not from the start of the SIP.
Illustration. Exit load assumed; each scheme sets its own. Tax rates as of October 2026. Source: fund-house tax reckoners for 2026-27, on the Income-tax Act, 2025 (secondary).
Trainer notes
Each instalment is a separate purchase. Units are taken as sold first-in-first-out (usual practice; statutory basis unconfirmed). The ₹1.25 lakh limit covers all such long-term gains of the investor in the year, not each scheme. An open-ended scheme's exit load cannot exceed 3% of NAV. In a tax-saving scheme (ELSS) each instalment has its own three-year lock-in. This explains the rule; it is not tax advice, and rates for debt and other schemes differ.
Where SIPs stand
For August 2026, the latest month AMFI has published. These change every month; quote the month.
- SIP INFLOW, ₹ CRORE
- 32,297Collected through SIPs during August 2026.
- CONTRIBUTING ACCOUNTS
- 10.02 cr1,001.79 lakh SIP accounts that AMFI counts as contributing.
- OUTSTANDING ACCOUNTS
- 10.75 cr1,075.32 lakh SIP accounts outstanding. 66.4 lakh new SIPs were registered.
- SIP ASSETS, ₹ LAKH CRORE
- 18.62₹18,61,652 crore, about 21.4% of the industry's net assets.
Source: AMFI, 'Mutual Fund SIP' data page, August 2026. Industry net assets ₹87,07,888 crore: AMFI Monthly Report, August 2026.
Trainer notes
Refresh from amfiindia.com each month. An account is one SIP, not one person; an investor can run several. State the figures and stop: they describe what investors did in August, not what any investor should do, and they say nothing about future returns.
If you learnt this from older material
What older decks say
- Long-term gains on equity funds are tax-free.
- A transaction charge is taken from purchases.
- Small purchases get the NAV of the application day.
- The whole instalment buys units.
What holds now
- 12.5% above ₹1.25 lakh a year, since 23 July 2024.
- The charge was abolished on 8 August 2025.
- NAV of the day funds are available before cut-off, any amount.
- Stamp duty of 0.005% comes off first.
Take-away: The mechanics of a SIP have not changed. The tax and the deductions around it have.
Sources: SEBI Master Circular for Mutual Funds, 20 Mar 2026; SEBI circular of 8 Aug 2025; fund-house tax reckoners for 2026-27 (secondary).
Trainer notes
The long-term rate on equity-oriented funds was 10% before 23 July 2024; gains accrued up to 31 January 2018 are grandfathered. The old rule gave purchases below ₹2 lakh the NAV of the application day; that threshold is gone. Tax rates are as of October 2026 and come from fund-house tax reckoners, a secondary source.
Four things people get wrong
Misconception'A SIP is a kind of scheme.'
What is trueIt is a way of buying units of a scheme. The scheme, its NAV and its risks are the same for every buyer.
Misconception'A SIP cannot lose money.'
What is trueIt can. On the falling path in this deck, ₹36,000 paid in was worth ₹26,475: a loss of ₹9,525.
Misconception'A SIP always beats a lump sum.'
What is trueIt depends on the path of the NAV. On the rising path in this deck the lump sum ended ahead.
Misconception'After a year, the whole SIP is long-term.'
What is trueEach instalment has its own holding period for tax and for exit load. Only the earliest ones have crossed a year.
Trainer notes
All four use the invented figures from this deck. If a client says SIPs are 'safe', correct it gently: a SIP changes when units are bought, not what they are. Returns are not assured.
Check yourself
Question 1: A SIP of ₹4,000 buys units on three dates at NAVs of ₹50, ₹40 and ₹32. Ignore stamp duty. How many units, and what is the average cost per unit?
Answer: 80 + 100 + 125 = 305 units. Average cost = ₹12,000 ÷ 305 = ₹39.34 a unit (the simple average of the three NAVs is ₹40.67).Question 2: On the next date the NAV of that scheme is ₹36. What is the holding worth, and what does this show about averaging?
Answer: 305 × ₹36 = ₹10,980 against ₹12,000 paid: a loss of ₹1,020. The NAV (₹36) is below the average cost (₹39.34). Averaging lowered the cost; it did not prevent a loss.Question 3: A client says: 'My SIP in an equity fund is one year old today, so I can redeem all of it as long-term.' What do you explain?
Answer: Each instalment has its own holding period. Only units from an instalment held for more than 12 months give a long-term gain; the later instalments are short-term and may also carry an exit load. Explain the rule; do not tell the client whether to redeem.
Trainer notes
Quiz figures are invented for the arithmetic.
Sources and disclaimer
Sources for the figures in this explainer
- SIP contribution ₹32,297 crore, 1,001.79 lakh contributing and 1,075.32 lakh outstanding accounts, 66.4 lakh new SIPs, SIP assets ₹18,61,652 crore: AMFI 'Mutual Fund SIP' page, August 2026.
- Industry net assets ₹87,07,887.74 crore on 31 Aug 2026: AMFI Monthly Report for August 2026.
- Applicable NAV, stamp duty on each instalment, exit load cap and transaction charge: SEBI Master Circular for Mutual Funds, 20 Mar 2026; SEBI circular of 8 Aug 2025.
- Tax on equity-oriented fund units as of October 2026: Income-tax Act, 2025, as summarised in fund-house tax reckoners for 2026-27 (secondary source).
- Rule points as verified in Trustner Academy's fact sheet, 7 Oct 2026.
- The schemes, NAVs, amounts and exit load in the worked examples and quiz are invented for illustration.
This material is for training and investor education only. It is not investment, tax or legal advice and is not a recommendation to buy, sell or hold any security or scheme. Examples use assumed figures unless a source and date are shown. Mutual fund investments are subject to market risks; read all scheme related documents carefully. Trustner Asset Services Pvt. Ltd. is an AMFI-registered Mutual Fund Distributor (ARN-286886).