- January 23, 2018
- Posted by: Moat Wealth Advisors
- Category: Mutual Funds
Things to Know About SIP Investment – by Moat Wealth Advisors.
Here are some of the most common questions about SIP answered!
1. What is SIP?
SIP or Systematic Investment Plan is an organised way of investing regularly in a mutual fund. You can set up SIP to automatically invest in a mutual fund of your choice.
2. Is SIP safe or not?
SIP is a very safe method to invest in mutual funds.
You do not need to worry about timing the market when investing via SIP. It allows you to take advantage of cost averaging thus protecting you from price spikes.
3. Are SIP returns taxable?
Depends on the type of mutual fund you invest in and when you redeem your investment. Returns from equity mutual funds have no tax on them if redeemed after a year of investment.
Debt mutual funds, on the other hand, are taxed at a rate of 20% with indexation benefit if you redeem after 3 years since investment.
Before that, it is taxed based on your income tax slab. Know more about tax on mutual funds.
4. Can SIP be stopped?
Yes. Unlike fixed deposits (FD) and recurring deposits (RD), you can stop an SIP any time you want.
5. Can SIP save tax?
If you use SIP to invest in tax saving ELSS mutual funds, you can save tax too.
6. Can SIP amount be reduced/increased?
The procedure to do so is very complicated. But there is a solution to this problem. You can simply start a new SIP in the same fund with the increased amount.
7. Does SIP have a lock in period?
If you are investing in an open-ended mutual fund, there will be no lock-in period for your SIP.
8. Does SIP have exit load?
The exit load of an SIP depends entirely on the mutual fund. If the mutual fund specifies an exit load for a period, then there will be an exit load on the SIP also.
Most equity funds have an exit load of 1% if redeemed before a year from investment and no exit load if redeemed after a year.
9. Is SIP better than RD?
SIP has the capability to give much higher returns than RD. The return you get on your SIP depends on the mutual fund you invest in.
There are debt mutual funds that are considered low risk and then there are equity mutual funds that are considered high risk.
10. Is SIP good for long term?
Yes. In fact, it is better to invest in SIP for the long term.
Instead of waiting and accumulating money to invest, you start investing whatever amount you are able to save. This way, your money is always invested.
11. Is SIP and mutual fund the same thing?
SIP is a method used to invest in mutual funds. You can invest in mutual funds in two ways: lump sum and SIP.
When you invest lump sum, you put in a large amount of money in a mutual fund in one go. In SIP, you invest smaller amounts of money on a regular basis – every month.