On the day your SIP instalment is due, four things happen in sequence, and almost none of them are visible to you. Understanding that sequence takes a lot of the anxiety out of the process.
What happens on your SIP date
First, the mandate registered with your bank authorises a debit of the fixed amount. Second, the money reaches the Asset Management Company through the payment system. Third, the AMC applies the Net Asset Value applicable for that day, as determined by the cut-off timing rules. Fourth, units are allotted to your folio and a confirmation is issued.
The number of units you receive is simply the amount divided by the applicable NAV. That is why the unit count changes every month even though the rupee amount does not.
Rupee-cost averaging, stated plainly
This mechanical effect is what people mean by rupee-cost averaging. Over many instalments, your average cost per unit reflects a spread of purchase prices rather than a single entry point. It removes the need to decide when to invest, which is a decision very few people get right consistently.
What it does not do is protect you from loss. If the scheme's NAV is lower when you need the money than the average price you paid, you will be sitting on a loss regardless of how disciplined the instalments were.
