"If you can't do something smart, do something right."

What exactly is a SIP? Its is a tool that ensures that you invest in good times and bad times. In other words it's  an insurance policy against our instinct to flee from a fire. SIP doesn't create alpha or return by itself-it merely smoothers the risk. SIP is a dumb and yet effective solution to the problem of volatility .

A Systematic Investment Plan is a  hassle free mode for investing money in mutual funds. SIP allows you to invest a certain predetermined amount at a regular interval (weekly, monthly, quarterly,). SIP is a planned approach towards investments and helps you inculcate the habit of saving and building wealth for the future. SIP remains a most preferable goal based tool among investors. 

How does it work?
 

A SIP is a flexible and SIMPLE investment plan. Investor’s money is auto-debited from his bank account and invested into a selected mutual fund scheme. Investor is allocated certain number of units based on the ongoing market rate (called NAV or net asset value) for the day. Every time you invest money, additional units of the scheme are purchased at the market rate and added to your account. Hence, units are bought at different rates and investors benefit from Rupee-Cost Averaging and the Power of Compounding.
 

Rupee-Cost averaging
 

With volatile markets, most investors remain skeptical about the best time to invest and try to ‘time’ their entry into the market. Rupee-cost averaging allows you to opt out of the guessing game. Since you are a regular investor, your money fetches more units when the price is low and lesser when the price is high. During volatile period, it may allow you to achieve a lower average cost per unit