An SIP is a tool to invest small amounts of money over regular intervals into mutual funds. Through SIP, you can build a huge sum at the end of a long period of time (10-20 years). This is one of the benefits of the power of compounding.

Every month when you make an investment, SIP units are allotted based on the NAV of the mutual fund scheme. This way you get more units when the market prices are low and a higher number of units when the prices are high. The final SIP amount is calculated based on the savings amount you want, and the time. It is also affected by the frequency of investment and the estimated return rates.

An SIP is one of the best and the safest methods to invest. The SIP full form is Systematic Investment Planning. One of the reasons why it is an incredibly safe way of investing is that you are allowed to invest small sums regularly instead of a huge sum in one go.

You remain safe from market volatility as when the market is low you end up buying more units while when the markets are high you get less units. The unit buying during the entire market cycle remains balanced. You also get the benefit of rupee cost averaging through it.

SIP and PPF are both great tools to build long term wealth. However, in the case of PPF the mandatory lock-in period is 15 years. Historical data shows that, if you invest in both then after 15 years the returns received on an SIP is at least 1.5 times higher than those on PPF. In terms of tax benefits, both PPF and ELSS mutual funds are eligible for tax benefits under section 80C.