There are now six to seven types of systematic investment plans (SIPs) available in Indian mutual funds. You can choose from 'value-based' SIPs. SIPs with different time frames, which claim to offer better returns. SIPs that split monthly installments into weekly installments. SIPs with different dates, which also claim to offer better returns. And SIPs that vary your monthly investments according to a more complex formula.

That's a lot of options and customer choice is always considered a good thing, right? Well, that's not the case. Too many choices in SIPs are definitely bad. These choices mislead people about what the real purpose of SIPs is and how people can be successful with their SIP investments. What's worse is that it promotes the idea that the key to better returns lies in some newly discovered trick or feature that is available in some SIPs but not in others. This is a false notion.

The importance of SIP lies in its simplicity or in other words, SIP means simplicity. SIP is not a magic arrow that will always, without fail, give you better returns than lump sum investing. However, given the general upward trend of stocks, SIP gives better returns than trying to time the market.

SIP means investing a fixed amount regularly in equity funds, regardless of the market. Over the long term, you buy more units when the market is down and fewer units when the market is up. This way, your average purchase price is likely to be lower. Therefore, when it comes time to redeem your investment, its value is likely to be higher. That is it. There is no guarantee, and certainly no surefire formula to get the returns you want.

Suppose, if the stock market in general goes into a stagnation or decline for a long time, then SIP will result in a loss of money. In such a case, you will earn less than a lump sum investment. But in the real world, since you invest in something that has a lot of fluctuations but its trend is generally upwards, hence most of the time you get better results.

However, there is another big reason to invest through SIP. The real value of SIP lies not in its mathematics but in its psychology. SIP is the simplest way to invest regularly and get good returns from equity. Without worrying about when to invest and when not to invest.

When the market is depressed, the general tendency of many investors is to stop investing. Either because they are scared or because they are trying to catch the bottom. However, SIP investors (most, but not all) continue with their SIPs. When the market goes up, they realise the value of not stopping their SIPs during bad market times. Thus begins a virtuous cycle that creates a new generation of investors who understand the value of regular investing.