How a SIP Actually Works
Updated 26 Aug 2026
A SIP invests a fixed rupee amount at a fixed interval, usually monthly. On each date the amount is divided by that day's NAV to determine how many units you receive.
Rupee-cost averaging
Because the amount is fixed, a fixed sum buys more units when NAV is low and fewer when it is high. Your average cost per unit therefore ends up below the average NAV over the period — an arithmetic consequence, not a forecast.
Practical details
- Units are allotted at the NAV applicable to the day funds are realised, so bank holidays can shift the date.
- The SIP date has negligible long-run impact — consistency matters far more.
- Each instalment has its own holding period for exit load and capital gains.
Measuring your own return
Because money went in at many different points, your SIP's return is XIRR, not the fund's CAGR. The fund's CAGR still tells you how the portfolio performed — use it to compare funds, and XIRR to track your own outcome.
Frequently asked questions
Does a SIP guarantee I won't lose money?
No. A SIP spreads out your entry price, which reduces the risk of investing everything at a peak. It does not protect against a market that falls over your whole holding period — the fund can still be down when you need the money.
Should I stop my SIP when markets fall?
Falling markets are when a SIP does its most useful work, buying more units at lower prices. Stopping then converts the mechanism's main advantage into a loss. Stop only if your circumstances change, not because of market levels.