SIP is not really about averaging: Deepak Shenoy explains the real reason systematic investing works

Systematic Investment Plans (SIPs) have become a popular route for Indians to invest regularly, with monthly SIP contributions now reaching around ₹31,000 crore. However, Deepak Shenoy, CEO of Capitalmind, says the primary benefit of SIPs is not the conventional idea of averaging the purchase price during market volatility.

According to Shenoy, rupee-cost averaging is an outcome of investing regularly in markets that move up and down, rather than the fundamental reason investors should use an SIP.

SIP and the income cycle

Shenoy argues that the stronger reason for systematic investing is simple: most people earn their income on a monthly basis. The natural financial cycle is therefore to earn, spend, save and invest every month.

An SIP fits into this income pattern by converting a portion of monthly earnings into a regular investment. Instead of having to make an investment decision every month, investors can automate the process and maintain consistency across market conditions.

This makes SIPs particularly relevant for salaried individuals and others with predictable monthly cash flows.

"The main reason an SIP is useful is not because it "averages" out the entry price over time in a volatile up and down market. That is just something we as an industry decided is a good thing - but it's an outcome, not a goal. The main reason is: most of us earn money monthly. End of story. You earn, you spend, you save, you invest. That cycle happens monthly, and therefore you SIP monthly," Shenoy wrote on X.

‘Invest first, spend later’

Shenoy also highlights the behavioural advantage of SIPs. If money is not invested, there is a possibility that it will simply be spent.

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By investing first and spending what remains, investors effectively create a form of forced savings. Over time, this can help build a meaningful investment corpus without requiring investors to make large, irregular investments.

The approach also does not mean investors must always stick to exactly the same amount. Shenoy points out that disciplined investors who manually invest every month can also follow the same principle, potentially putting in more during months when they have surplus cash and less when finances are tighter.

Shenoy added: "But the secondary reason is also: if you don't invest it, you probably will spend it. This is why SIPs make sense - you invest first and spend later, usually. So you end up spending only what's left with you, and that "forced" investing of sorts helps you build wealth for later. Many of us have the discipline to do an SIP manually every month - otherwise called "lumpsum" investing. This is also fine, and probably better because some months you will have way more money, and some you will be on kadki mode."

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Savings matter more

Another important point in Shenoy’s argument is the distinction between savings and investment returns during different stages of wealth creation.

In the initial years, the bulk of an investor’s corpus is likely to come from the money they themselves save and invest. Investment returns become increasingly important as the corpus grows and begins generating returns on a larger base.

This means increasing the amount invested regularly can accelerate wealth creation, particularly during the early stages of an investment journey.

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Wealth creation is only one part of the journey

Shenoy ultimately frames investing as a three-part process: saving and investing money, allowing that money to grow through returns, and eventually spending it.

The final stage, he argues, should not be overlooked. The purpose of building wealth is not simply to accumulate a larger number in an investment account, but to use that wealth to improve one’s life.

With SIP flows reaching ₹31,000 crore a month, the growing popularity of systematic investing highlights the importance of financial discipline. But Shenoy’s argument is that investors should view SIPs less as a market-timing or averaging strategy and more as a mechanism that turns regular income into long-term savings and, eventually, usable wealth.