How SIP smooths out market timing
A Systematic Investment Plan buys a fixed dollar amount of fund units every month. When markets drop, your fixed amount buys more units; when markets rise, it buys fewer. Over a full market cycle this produces a lower average cost than trying to time entry points.
Behaviorally, SIPs also remove the emotional barrier to investing during scary markets — the contribution happens automatically.
SIP vs lump sum
Mathematically, if markets generally rise, a lump sum invested today beats the same amount drip-fed over a year about two-thirds of the time. But lump-sum investing requires having the cash today and stomaching the regret risk of investing right before a crash.
Most investors do best with a hybrid: deploy any windfall as a lump sum, then continue monthly SIP contributions from ongoing income.
Picking funds by CAGR
Compare funds using 5-year and 10-year CAGR rather than 1-year returns. Look for low expense ratios (< 1% for active, < 0.5% for index), consistent manager tenure, and category-relative performance. Past returns don't guarantee future results, but persistently below-median funds rarely turn around.