The full form of SIP in mutual funds is Systematic Investment Plan. It is not an asset class or an investment instrument.

It is, in reality, one of the methods of investing in mutual funds. Therefore, SIP refers to investment in mutual funds regularly with a fixed amount of money in a disciplined manner. SIP meaning is it helps you invest a fixed amount of money regularly in various mutual funds schemes depending on your financial goals. You have the potential to create long-term wealth, by investing a small sum of money through a Systematic Investment Plan. The Systematic Investment Plan approach suits people with regular cash flow or a fixed salary. For example – You want to build a fund of Rs. 5.4 Lakhs in 3 years for foreign travel. By starting a monthly SIP investment for Rs. 15,000, you can achieve the goal conveniently.

Systematic Investment Plan is the best way to get into the habit of saving and investing regularly. Apart from that, if you start Systematic Investment Plan early you have a longer investment horizon to avail benefits of the power of compounding. Additionally, a SIP investment avoids timing the market. SIP investment is least affected by the market volatility due to rupee cost averaging. When the markets are high, you purchase a fewer number of units as compared to the down market. Systematic Investment Plan helps compound returns over the long term. In other words, when you invest through the Systematic Investment Plan route, the earnings are reinvested into the mutual fund scheme. Thus, when the returns are reinvested, the compounding effect comes into play, which aids in the creation of further wealth.While you invest consistently over time, you gain more units when prices are low and fewer units when prices are high. This contributes to the reduction of your average cost of investment.