2 mins Read | 5 Years Ago

Here's all you should know about Systematic Investment Plan


With more than Rs. 7,000 crores invested every month, Systematic Investment Plan (SIP) is currently one of the most popular investment options in India. One of the biggest reasons for this widespread popularity of SIP Systematic Investment Plan is the convenience with which it lets retail investors invest their money.

Moreover, as compared to most other investment options, SIPs are easy to understand as well. However, while SIPs are convenient and easy, there are a few things that every investor should certainly know before investing. Here are five such important things-

1. Choosing the right mutual fund scheme for SIP

Which is the best SIP plan? This is one of the most common queries among new investors. However, there is no single answer to this question. Every investor, their risk profile and objectives are different. As a result, no single SIP plan is right for every investor.

To select the best, make sure that you first understand your risk profile and objective. All the different types of schemes have different levels of risk and are ideal for different goals.

2. Deciding the SIP Amount

Apart from selecting the right plan, you must also choose the right SIP amount to achieve your objectives. While you can start with just Rs. five hundred per month, pick a reasonable amount that you can easily afford every month and which is in line with your end goal.

If you've just started earning, select the minimum amount that you can afford and then increase the SIP amount at a later stage as your income rises.

3. Choosing the duration of SIP

One of the biggest benefits of SIP investment is that there is no fixed duration for which you need to continue the SIP. While it is recommended that you should invest as long as possible, you can pause and even resume your SIP as and when you like.

This means that you can invest in mutual fund schemes through SIP for 15 years, 10 years, or even 1 year.

4. Starting a SIP

In the past, you were required to get in touch with an AMC (Asset Management Company) agent to invest in mutual funds through SIP. However, thanks to internet banking, this can now be done online. How to open SIP account online? Just visit the official website of your AMC (Asset management company) and register for the same.

You'll be required to fill the KYC and provide some additional details to open a SIP account online instantly.

5. Taxation on SIPs

SIP gains are taxed based on the holding period and the type of scheme you have invested in. Every SIP is treated as a fresh investment for tax purposes. For instance, gains of up to Rs. 1 lakh from an equity fund after a year are tax-free but if the amount is higher than Rs. 1 lakh, capital gains tax at 10% is applicable.

Similarly, if you redeem the units within one year from the date of investment, capital gains tax of 15% is applicable.

Being a savvy SIP Investor

It is only by thoroughly understanding the working of SIP plans and mutual funds that you can take the right investment decisions. While the basics of what is SIP plan and how it works are discussed above, focus on educating yourself to be a savvy investor.

The internet is now flooded with all the information you need to begin your SIP journey. Official websites of top AMCs are the best places to find reliable information with regards to SIPs and mutual funds.



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