A Systematic Investment Plan refers to periodic investing in a mutual fund. Every month or every three months, the investor will have to commit to putting in a fixed amount. This will go towards the purchase of units.
Let’s say that every month you commit to investing, say, Rs 1,000 in your fund. At the end of a year, you would have invested Rs 12,000.
If the NAV on the day you invest in the first month is Rs 20, you will get 50 units.
The next month, the NAV is Rs 25. You will get 40 units.
The following month, the NAV is Rs 18. You will get 55.56 units.
So, after three months, you would have 145.56 units. On an average, you would have paid around Rs 21 per unit. This is because, when the NAV is high, you get fewer units per Rs 1,000. When the NAV falls, you get more units per Rs 1,000.