Lesson 1 of 10 · SIP, STP and SWP — How They Work

What is SIP & How It Works

A Systematic Investment Plan (SIP) invests a fixed amount in a mutual fund scheme at fixed intervals. This lesson explains how each instalment is collected and turned into units, what each scheme sets for itself, and what a SIP does not promise.

Fact-checked 8 October 20264 practice questions in the game

A method, not a product

A Systematic Investment Plan, or SIP, is an instruction to invest a fixed amount in a mutual fund scheme at fixed intervals, usually every month.

A SIP is therefore a method of investing, not a product, and it has no rate of return of its own. It can be set up in open-ended schemes of many categories, wherever the scheme offers the facility, and what the investor owns at the end is units of that scheme, whose value moves with its net asset value (NAV).

How an instalment becomes units

On each instalment date the amount is collected from the investor's bank account and used to buy units. Stamp duty of 0.005% is deducted first, so units allotted = (amount − stamp duty) ÷ NAV. Mutual fund purchases carry no entry load.

The price is the NAV applicable to that instalment's own day. For most schemes this is the NAV of the day on which the money is available for the scheme to use before the cut-off time of 3:00 pm; liquid and overnight schemes follow their own rule. The price is not fixed in advance or averaged over the month: a lower NAV on the day means more units, a higher NAV fewer.

The auto-debit mandate

Instalments are collected under an auto-debit mandate that the investor registers with the bank, through the National Automated Clearing House (NACH) or UPI AutoPay. How large a mandate may be and how long it takes to become active depend on the bank and the payment system, not on the scheme.

What each scheme sets, and what a SIP does not do

No single minimum applies to all SIPs. The minimum instalment and the minimum number of instalments are set by each scheme in its offer document, the Scheme Information Document.

A SIP can usually be stopped, and stopping ends only future purchases; units already bought stay invested until they are redeemed. An exit load may apply when units are redeemed, and in an Equity Linked Savings Scheme (ELSS) each instalment is locked in for 3 years from its own allotment date.

A SIP does not assure a profit or protect against loss in a falling market. The units are market-linked, so their value on any later date can be above or below the amount invested.

Rules at a glance

Stamp duty on each instalment0.005% of the amount, deducted before units are allotted; none on redemptionIndian Stamp Act, 1899; applies to mutual fund purchases since 1 July 2020

Applicable NAV, schemes other than liquid and overnightNAV of the day the money is available for use before the 3:00 pm cut-off, whatever the amountSEBI Master Circular for Mutual Funds, 20 March 2026

Minimum amount and number of instalmentsSet by each scheme in its Scheme Information DocumentSEBI's Master Circular prescribes no figure

ELSS lock-in3 years for each instalment, from its own allotment dateCounted instalment by instalment, not from the start of the SIP

Worked example

Units from two instalments (illustrative)

First instalment: ₹5,000 at an applicable NAV of ₹25.
Stamp duty = 0.005% of ₹5,000 = ₹0.25.
Amount that buys units = ₹5,000 − ₹0.25 = ₹4,999.75.
Units = ₹4,999.75 ÷ 25 = 199.99. Without the duty the figure would be 200.00.
Second instalment: the applicable NAV is ₹20. Units = ₹4,999.75 ÷ 20 = 249.9875, about 249.99.

Result. The two instalments buy 199.99 and about 249.99 units, about 449.98 units for ₹10,000. The second instalment bought more units only because the NAV was lower that day.

Key points

A SIP is a method of investing a fixed amount at fixed intervals, not a product with a return of its own.
Each instalment buys units at the NAV applicable to its own day, after stamp duty of 0.005%: units = (amount − stamp duty) ÷ NAV.
Instalments are collected under a bank auto-debit mandate through NACH or UPI AutoPay.
The minimum amount and number of instalments are set by each scheme in its offer document.
A SIP does not assure a profit or protect against loss; the value of the units rises and falls with the NAV.

Common misunderstandings

A SIP is not a scheme with a rate of its own: it is a way of buying units, and the result depends on the NAV of the scheme chosen.
The price is not the NAV on the day the SIP was registered or a monthly average: each instalment gets the NAV applicable to its own day.
A long-running SIP is not assured of a gain: it does not protect against loss in a falling market.

Questions people ask

Is a SIP a separate kind of mutual fund?

No. It is a way of buying units of a scheme in instalments. The units are the same as those bought in a single purchase.

Is the minimum SIP amount the same everywhere?

No. Each scheme sets its own minimum amount and minimum number of instalments in its offer document.

What authorises the monthly debit?

An auto-debit mandate registered with the investor's bank, through NACH or UPI AutoPay. A nomination, an account statement or the Key Information Memorandum does not authorise any debit.

What this lesson relies on

SEBI (Mutual Funds) Regulations, 2026
SEBI Master Circular for Mutual Funds, 20 March 2026 (applicable NAV and cut-off times)
Indian Stamp Act, 1899, as amended by the Finance Act, 2019 (stamp duty on mutual fund units from 1 July 2020)
Scheme Information Document of the scheme concerned (minimum amount, number of instalments, exit load)

This lesson was reviewed independently against these sources on 8 October 2026. Rules change: check the current regulation, scheme document or policy wording before relying on any figure. This is education, not advice.