What is a Systematic Investment Plan?
A SIP is an arrangement to invest a fixed amount in a mutual fund scheme at a fixed interval, usually monthly, on a date you choose. The amount is debited automatically and buys units at whatever the NAV happens to be that day.
It converts investing from a decision you have to keep making into a process that runs on its own — which is most of the battle.
Rupee-cost averaging
Because the amount is fixed and the price is not, you buy more units when markets fall and fewer when they rise. Over a long period this brings your average cost per unit below the average price over the same window.
It does not guarantee a profit or protect against loss in a falling market. What it does is remove the need to judge when to enter — a judgement very few people make well consistently.
Convenience and discipline
A SIP can be started with a few hundred rupees, paused, increased or stopped without penalty in an open-ended scheme. The discipline is the point: the investors who do best are rarely the ones who picked the best fund, but the ones who kept going through the years when it was uncomfortable.