A SIP allows an investor to invest regularly. One puts in a small amount every month that is invested in a mutual fund. A SIP allows one to take part in the stock market without trying to second-guess its movements.
X decides to invest INR 1,000 per month for a year.
When the market price of shares fall, X benefits by purchasing more units; and is protected by purchasing less when the price rises as explained below. Within one year, X has 1,186 units by investing just INR 1,000 every month at an average cost of 12000/1186.15 = 10.1170. This is as against 12,000/10 = 1,000 units or 12000/11.5 = 1043.5 units or 12000/9 = 1,333.3 units if X had invested lump sum on 1 Jan, 1 Jun or 1 May, respectively.