What is an SIP?
- Manan Mehta
- Nov 20
- 7 min read
Systematic Investment Plans (SIPs) have become synonymous with mutual fund investing in India. Yet most investors don't understand how they actually work under the hood. What are mandates and why are they necessary? This comprehensive guide demystifies the entire process, explaining SIP mechanics, mandate creation, common mistakes, and how to set up automated investing properly.
What Is a SIP (Systematic Investment Plan)?
A Systematic Investment Plan (SIP) is a mechanism to invest a fixed amount of money in a mutual fund at regular intervals (usually monthly, quarterly, or weekly).
Common misunderstanding: "SIP gets better returns than lump sum"
Reality: If you invest the same amount on the same dates, whether via SIP mode or manual lump sum investment, you'll receive identical NAVs and identical final corpus. SIP's only difference is automation.
The real benefit of SIP: It removes behavioral friction and keeps investors disciplined. That's it. That's the whole advantage.
Why SIPs Are Promoted So Heavily
Who benefits most from SIPs?
Fund houses: Steady, predictable cash inflow allows better fund management forecasting
Asset management companies: More SIP commitments = more revenue certainty
Financial institutions: Easier to manage recurring payments than one-time transactions
Investors: Behavioral discipline and psychological ease
Over the past 15 years, SIPs have been promoted so heavily that they've become synonymous with "investing itself" for retail investors. This is partly genuine benefit, partly marketing by fund houses.
SIP Benefits: Real vs Perceived
Genuine Benefits (Behavioral)
1. Removes Timing Bias
Many investors delay investing waiting for "perfect market timing"
SIP forces regular investment regardless of market levels
Prevents "waiting for correction" paralysis
2. Set-and-Forget Automation
Money automatically debits from bank account
Eliminates manual effort each month
Lets you focus on work, life, other goals
3. Cushions Against Market Losses Psychologically
Seeing ₹10 lakh portfolio fall to ₹6 lakh is painful (psychologically easy to sell)
Seeing ₹5,000/month SIP reduce returns feels less dramatic
Same losses, but psychologically easier to weather
4. Rupee Cost Averaging (With Caveats)
You buy more units when prices are low
You buy fewer units when prices are high
Averages your cost per unit over time
Legitimate Downsides (Often Ignored)
1. Keeps Capital Out of Market
Your last SIP installment (month 12 of annual SIP) hasn't compounded yet
Lump sum invested month 1 has 11 months additional compounding
Mathematically, lump sum should win in bull markets
2. False Sense of Security
"I'm doing SIP, so I'm protected from losses"
Reality: If market crashes 40%, your SIP portfolio also crashes ~40%
SIP doesn't prevent losses, it just makes them feel gradual
3. Small-Cap SIP Example: Zero Returns After 5 Years
Some small-cap funds with 5-year SIP records show near-zero returns
You paid ₹6 lakh (₹10K × 60 months) and got ₹6-6.2 lakh back
Market volatility can wipe out gains despite decades of investment discipline
4. Returns vs Corpus Confusion
Investors obsess over return percentages (11% vs 9% CAGR)
But corpus size matters more than return percentage
Lump sum ₹120: Grows at 9% = ₹130.80
SIP ₹10/month: Grows at 11% = ₹127
Despite higher returns, SIP corpus smaller due to less compounding time
If you want someone to assist you with your investments, feel free to contact us. Our team of experts will be happy to help. You can also email us at help@reymanwealth.com
How SIPs Actually Work: The Technical Process
SIP is a three-party contract:
You (investor)
Your bank
Biller intermediary (fund house, BSE StAR, MFUtility, PayTM Money, etc.)
Step-by-Step SIP Processing
TLDR: This doesnt really matter. We've kept this here for people who are curious. But for most people, feel free to ignore this part.
Step 1: Advance Bill Notification (Pre-SIP Date)
Assume your SIP date is 5th of the month.
Approximately 8-30 days before (around 25th of previous month), the biller intermediary sends a bill to your bank for the SIP amount[Source article].
Example timeline:
SIP date: April 5th
Bill sent by intermediary: March 26th (10 days advance)
Bank receives bill: March 26th evening/next morning
Bank bills you: April 5th
Step 2: Bank Internal Processing
Your bank receives this bill and queues it in its internal bill processing system. This doesn't require your intervention, approval, or OTP—because you've already authorized the biller via a mandate.
Step 3: Bill Payment on SIP Date
On April 5th (SIP date), your bank:
Debits your account for the SIP amount
Sends funds to the biller intermediary
Step 4: Biller Sends to Fund House
The biller intermediary forwards the amount to fund house or RTA (Registrar and Transfer Agent), along with:
Your personal details
Folio number
Fund name
SIP amount
SIP date
Step 5: Fund House Allocates Units
Fund house allocates units based on NAV of the SIP date. Confirmation email says: "Units allotted are provisional and subject to fund realization".
Step 6: Bank Debit Happens
Important: Actual bank debit might happen on same day as SIP date OR next business day. Delays can occur due to:
Payment gateway delays
Bank bill-processing delays
Weekend/holiday holidays
Timeline reality: Don't panic if money debits 1-2 business days after SIP date. This is normal
Understanding Bank Mandates: The Authorization System
What Is a Mandate?
A mandate is written authorization from you, allowing a specific biller (identified by unique URN—Unique Reference Number) to approach your bank and directly debit your account without requiring your intervention on each transaction.
Why mandates are necessary: Billers cannot simply withdraw money from anyone's bank account without explicit consent. Mandate is that consent.
The Mandate Process: Cooling-Off Period
When you set up a mandate, banks impose a cooling-off period (or "time-to-set-up"). This allows you to come forward if:
Mandate was set up by mistake
Fraudulent mandate creation (someone impersonated you)
You changed your mind about authorization
If you want someone to assist you with your investments, feel free to contact us. Our team of experts will be happy to help. You can also email us at help@reymanwealth.com
Common SIP Scenarios: FAQ Explained
"My SIP date was today, but money hasn't been deducted. What now?"
Why this happens:
Fund houses can process orders without receiving funds (for liquid funds only if >₹2L)
Payment gateway delays
Bank bill-processing delays
Order confirmations say: "Units allotted are provisional and subject to fund realization"
Timeline: Actual debit happens same day as SIP date OR next business day
Action: Wait 1-2 business days. Contact intermediary only if still not debited after 2 business days.
"My SIP date is tomorrow, which is Sunday. What happens?"
Answer: Relax. Nothing to do.
If SIP date falls on holiday or non-trading day:
It's automatically processed on next available trading day
You get NAV of that effective SIP date (next trading day's NAV)
SIP doesn't cancel or fail
Example:
Your SIP date: Sunday, March 9th
Actual processing: Monday, March 10th (next trading day)
You get: Monday's NAV, not Sunday's
"It says 'First payment can be made now.' Is this lump sum or SIP?"
Scenario: You want SIP starting 20th of a month, but today is 1st.
What most platforms offer: Option to make first payment immediately (1st) for this month's installment.
Is it SIP or lump sum?
Technically: It's a lump sum payment with SIP limits applicable
Practically: Doesn't matter (as discussed, mode has no impact on corpus)
What you'll get:
NAV of 1st (today's NAV)
NOT NAV of 20th
Your regular SIP starts next month (20th of next month), since this month's already paid
"What mandate limit should I set?"
General rule: Set limit 25-50% higher than your highest planned SIP/lump sum amount
Examples:
Max SIP: ₹10,000/month → Set limit ₹15,000
Occasional lump sum: ₹2 lakh → Set limit ₹3 lakh
Multiple SIPs total: ₹25,000 → Set limit ₹35,000
For NACH: Set high since you can't edit later For BillPay: Can adjust anytime, so flexibility exists
"Can I switch my mandate to another platform?"
Simple answer: No, you cannot migrate mandate directly
Why: Mandate is identified by URN (Unique Reference Number), and each biller/platform has different URN
What to do:
Cancel existing mandate (process differs by mandate type)
Set up new mandate with new biller/intermediary
Start fresh SIP/lump sum investment
"How do I delete/cancel my mandate?"
If BillPay mandate (easiest):
Log into netbanking/app
Go to Bill Payment section
Find biller
Delete/Remove → Done
If NACH mandate (complicated):
Contact your bank directly
Some banks allow email requests
Many require branch visit in person
Takes 5-10 days
For intermediary support: Your bank's relationship team best suited to handle removal
Step-by-Step: Setting Up Your First SIP
Read here
When Lump Sum Makes Sense Over SIP
Read here
The Honest Truth About SIPs
What SIP Actually Is: An automated payment system that disciplines investors and removes behavioral bias. Nothing more.
What SIP Is NOT:
A guaranteed path to wealth (market volatility happens regardless)
A return-maximizing strategy (lump sum often wins mathematically)
Protection against losses (50% market crash = 50% portfolio crash)
Why SIPs are promoted heavily:
Fund houses benefit from steady cash inflows. Not purely altruism
Should you use SIP? Yes, if:
You earn monthly income and invest proportionally
You want behavioral discipline
You lack timing ability
You want automation
Should you use SIP? No, if:
You have large lump sums and can handle timing decisions
You're a passive investor comfortable with STP approach
You have sophisticated investment strategy
Bottom Line: SIP as a Tool, Not a Magic Solution
SIPs are tools for behavioral discipline and automation. They work beautifully for salaried individuals investing monthly savings.
They don't generate superior returns vs lump sum investing on same dates. They don't prevent market losses. They just make investing easier and more psychologically tolerable
The real magic: Consistent investing over decades + compound growth + staying invested during crashes. The vehicle (SIP vs lump sum) matters far less than the discipline and duration.
Set up your SIP today. Increase it with each salary increment. Forget about it for 20 years. That's the real secret.
If you want someone to assist you with your investments, feel free to contact us. Our team of experts will be happy to help. You can also email us at help@reymanwealth.com
Comments