SIP Frequently Asked Questions

Frequently Asked Questions About SIP
Conclusion

SIP is a systematic and planned strategy of investment in which an investor invests a certain predetermined amount in a specific mutual fund scheme at regular intervals in order to create wealth. Asset Management Companies (AMCs) manage these SIPs and they invest in stocks, bonds, government securities, cash or other assets depending on the mutual fund objective and investment strategy.

Frequently Asked Questions About SIP

1) What is the minimum investment one can start SIP in mutual fund schemes?

All fund houses have different minimum investment amounts. Recently many mutual funds have reduced the minimum amount to Rs 100 however a few with a minimum of Rs. 500.

2) SIP vs lump sum investments in Mutual Funds, why SIP scores high?

SIP and lump sum are the two different strategies of investment. There are many factors that play a big role in this decision. Your current age, the purpose of investing, type of mutual fund selected, availability of funds and market condition are the few factors that need to be considered. However, SIP has a niche over lump sum investment because in this form of investment the risk factor spreads over a period of time and the investor gets an average and consistent return.

3) How are SIP Mutual Funds taxed?

SIPs are taxed in FIFA pattern i.e. first in first out pattern. If you redeem a part of an investment made through SIP, the earlier SIPs are redeemed first and the later SIPs are redeemed later. In order to qualify for long term capital gains, each of your SIPs in invested corpus must complete at least one year of time. Long term capital gains over Rs 1,00,000 is taxed at 10% and short term capital gains are taxed at 15%. Understanding how SIP Mutual Funds are taxed would help you to plan your taxes.

4) SIPs in mutual funds should be invested for 5-10 years – How far is this true?

SIP is a systematic investment which helps to grow your wealth in the long-term. The power of compounding of interest comes into play where you start earning good returns if you remain invested for a long time. The risk of up-downs of the market also spreads out over a long period of time.

5) How can you invest in SIP mutual funds offline?

To invest in SIP mutual funds offline, you need to search for a mutual fund advisor or broker in your locality. The broker will guide you through the entire procedure and formalities regarding the mutual funds. However, it is difficult to track the investments if these are in offline mode. We advise you to invest online even if such funds are recommended by your broker or mutual fund advisor.

6) How can you invest online in mutual funds SIPs through intermediary portals?

There are certain independent web portals that provide the services to mutual fund investors to transact online at no extra cost. Most of the banks have a tie-up with them to facilitate easy transfer of funds at the time of investing. You need to create an online account with them after which you can have access to the entire mutual fund platform. These portals offer several benefits like tracking tools, analysis tools, zero-cost advantage etc. which helps to build a good portfolio.

7) How do I invest online without dependency with any MF broker?

As a new investor, there is one-time documentation called KYC (know your customer) which one needs to complete. If you have an Aadhar card and online banking facility, then you can start investing in mutual funds with e KYC. One can invest online directly through the website of the mutual fund company.

8) When should I stop my SIP?

SIP should be stopped only in three circumstances. Firstly, if you realize that you have invested in a wrong type of fund that would not help you in achieving your financial goal, secondly if the fund you are investing in is a chronic underperformer (as compared to its benchmark) and finally if you get closer to your financial goal, you can stop SIP.

9) Which SIP date is best for investment in a month?

You might be thinking which is the best date for SIP Mutual Funds to invest. One may choose a date closer to his salary day so that he may never run short of funds in the account. Still, if you wish to choose a date, let your SIP hit your account between the 1st to 10th of the month.

10) If you have opted for a 10 years SIP, but want to cancel in 6 months, can you do it?

Yes, you can stop or cancel your SIP before the predetermined tenure. To cancel the SIP, just download the SIP cancellation form from the company’s website or obtain it from your broker or cancel it from your online login. You need to fill in the details and submit it to the Registrar of the fund/distributor/agent/ mutual fund house. After submitting the application, the request is processed in about 20 to 30 days to stop SIP.

11) Can you stop SIP after a few years, but continue to hold these mutual fund units?

Yes you can. You need to cancel the SIP as indicated above as and when you want to do it. Units accumulated till such time would continue to grow if you stay invested for a long term.

12) Can a minor start SIP in a Mutual Fund?

Yes, minors can invest in mutual funds as there is no age specified to invest in mutual funds. With a parent or a legal guardian selected as guardian, a minor can create a portfolio, be the first sole holder and invest in it.

Conclusion

SIPs have emerged as a powerful tool for investment in the past few years. It makes the investment and wealth creation so systematic that by staying invested meticulously and wisely, one is ought to accomplish his financial goals in the long run. The AMCs present a wide range of schemes with a different combination of types of investments so that the investor can choose his fund according to his suitability, financial goals, and risk appetite.

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Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.