SIP Terminology Made Simple: A Beginner’s Guide to Smarter Investing

“SIP is not just an Investment plan—it’s a Smart habit for a better future.”

If you’ve started your journey into Mutual Fund Investing, you’ve probably come across the Term SIP, which stands for Systematic Investment Plan. But when you hear words like NAV, Units, or Expense Ratio, it can feel a bit confusing.

Don't worry! In this article, we’ll explain all the important SIP Terminologies in simple words. Whether you’re just starting or looking to understand SIP better, this guide will make it easier for you to Invest with confidence.

What is SIP?

A Systematic Investment Plan (SIP) is a method of Investing a Fixed Amount regularly (usually every Month) into a Mutual Fund. Think of it like setting up a Monthly auto-Payment to Invest your Money and grow it over time.

It’s easy, flexible, and perfect for building wealth in the long run—even if you start with just ₹500 a Month.

Common SIP Terms You Should Know

Here are the most important SIP-related Terms you’ll often come across in practice, explained in simple language:

1. NAV (Net Asset Value)

What it means: NAV is the Price of one Unit (share) of a Mutual Fund.
Why it's important: The number of Units you receive depends on this Price.
Example: If NAV is ₹25 and you Invest ₹5,000, you will get 200 Units.

2. Units

What it means: These are the shares of a Mutual Fund that you own.
How it works: When you Invest through SIP, your Money buys Units based on the NAV.

3. SIP Date

What it means: This is the Fixed Date every Month when the SIP amount is deducted from your Bank Account.
Pro Tip: Choose a date after your salary gets credited to avoid failed transactions.

4. Expense Ratio

What it means: This is a small percentage fee charged by the Mutual Fund Company to manage your Money.
Why it matters: A lower Expense Ratio means more of your Money stays Invested and Earns Returns.

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5. CAGR (Compound Annual Growth Rate)

What it means: CAGR shows how much your Investment has grown every Year on average.
Why it matters: It helps compare different Funds' performance.

6. Lock-in Period

What it means: This is the time period during which you cannot withdraw your Money.
Applies to: ELSS (tax-saving Mutual Funds), which have a 3-Year lock-in.

7. Exit Load

What it means: A small fee charged if you withdraw your Money before a certain period (usually 1 year).
Tip: Wait until the exit load period is over to avoid charges.

Other Helpful SIP Terms

Here are a few more Terms that Investors find useful:

Top-Up SIP: Allows you to increase your SIP amount regularly as your income grows.
SIP Pause: Lets you temporarily stop SIP Payments if you’re facing financial issues.
STP (Systematic Transfer Plan): Helps move Money from one Mutual Fund to another in parts.
SWP (Systematic Withdrawal Plan): Lets you take out a Fixed Amount from your Mutual Fund regularly—ideal during retirement.

Learn the Terms, Invest Smart

Understanding SIP-related Terms can help you feel more confident and make better Investment decisions. You don’t have to be a finance expert—just knowing these basics can go a long way.

So the next time someone talks about NAV, CAGR, or lock-in periods, you’ll know exactly what they mean!

“Small Investments made regularly with the right knowledge can turn into big wealth over time.”