There are a lot of myths concerning Systematic Investment Plans. Here are some questions to help you clear up your doubts about the Systematic Investment Plan:

What is SIP?

Systematic Investment Plan (SIP) is an acronym for Systematic Investment Plan. A systematic investment plan is a method of investing in a mutual fund on a regular basis. We don’t always have significant sums of money to invest. Your account is debited a specific amount every month when you set up a SIP with any mutual fund. This sum is put into a mutual fund of your choosing. Your assets build and continue to expand over time.

Is SIP safe or not?

SIP (Systematic Investment Plan) is a very safe way to invest in mutual funds. You may wind up paying a very high price for a mutual fund if you invest in it in a lump sum, depending on market conditions. If you want to avoid this, invest in mutual funds when the markets are not inflated. This, of course, necessitates a thorough understanding of the markets. This is referred to as market timing.

When you invest in a SIP, you don’t have to worry about market timing. You invest a tiny amount of money every month in a SIP. The price will fluctuate from month to month, with some months having a higher price and others having a lower price. When looking at the big picture, the price you pay will be a mix of high and low. As a result, if you invest in a mutual fund via SIP, you will not pay a high or inflated price for it. Rupee cost averaging is the term for this.

Are SIP returns taxable?

It all depends on the mutual fund you choose and when you redeem your investment.

When equities mutual fund returns are redeemed after a year of investment, they are tax-free. If you sell your stock before the year is up, you’ll have to pay a 15% tax on your profits.

Debt mutual funds, on the other hand, are taxed at a rate of 20% with an indexation benefit if redeemed after three years. If you redeem before three years, the tax is calculated according to your income tax bracket.

Note: Individual SIP investments are taxed in the case of SIPs. This means that the tax will be calculated separately for each SIP installment.

Example: Assume you have a $1,000 monthly SIP that begins in January 2018 and ends in December 2018. Assume you’ve put money into an equity mutual fund. As a result, if you redeem your investment after 12 months, you won’t have to pay any tax. So, in order to avoid paying tax, you should redeem your January 2018 investment one year later, in January 2019. To avoid paying taxes, the installment you paid in February 2018 should be redeemed after February 2019.

Can Systematic Investment Plan be stopped?

Yes. You can stop a SIP at any moment, unlike fixed deposits (FD) and recurrent deposits (RD). After you cease paying for a SIP plan, you have the option of withdrawing your money from the mutual fund or continuing to invest in it.

Can SIP save tax?

You can save tax by investing in tax-advantaged ELSS mutual funds through a systematic investment plan. Investing in ELSS mutual funds might result in tax deductions of up to 1.5 lakh under Section 80C.

If you want to invest in ELSS mutual funds through a SIP, make sure that the sum of all your SIPs in a financial year is at least 1.5 lakhs. You would not receive any additional tax benefits if you invest more than 1.5 lakh. If you believe an ELSS mutual fund is a solid investment, you can still invest in it.

Example 1: If you start a 12-500 SIP in April 2018 and continue it through March 2019, you will have invested a total of 1.5 lakh in the 2018-2019 fiscal year. As a result, for the fiscal year 2018-2019, you will be eligible for a tax benefit of 1.5 lakh.

Example 2: Let’s make a minor adjustment to the previous example. Let’s pretend you started in May 2018 instead of April 2018 – a month later. The final installment of your SIP will be made in April 2019, which is not part of the 2018-2019 fiscal year. Then your entire investment for the fiscal year 2018-2019 would be merely 137500. As a result, you would only be eligible for a tax advantage of 137500.

Can the 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.

Example: Let’s imagine your SIP is currently $10000 per month and you’d like to boost it to $12,000. You can simply start a new SIP in the same mutual fund with a larger amount.

Note: Some mutual funds, though uncommon, have stopped taking new SIPs for a variety of reasons. You will not be able to establish a new SIP in the same mutual fund if your mutual fund does not allow new SIPs and you cancel your SIP. In such instances, it is recommended that you keep the present SIP but establish a new SIP with the extra money in a different mutual fund.

Can SIP be started online?

Yes, you may quickly start a SIP using the internet. Make sure you’ve signed up for a Systematic Investment Plan before starting a SIP online. After uploading the required documents (PAN, address proof, and bank statement), select a mutual fund to start a SIP in.

Does SIP have a lock-in period?

There will be no lock-in period for your SIP if you are investing in an open-ended mutual fund. It is entirely dependent on the mutual fund in which you invest. There is a lock-in period for some mutual funds. The lock-in period for ELSS mutual funds is three years. There are lock-in periods in many other mutual funds as well. Closed-ended mutual funds are those that have a period of lock-in.

Does SIP have an exit load?

A SIP’s exit burden is solely determined by the mutual fund. If the mutual fund defines an exit load for a specific period, the SIP will likewise have an exit load. If redeemed before a year from investing, most equity funds charge a 1% exit load; if redeemed after a year, there is no exit load. The exit burden is determined based on the redeeming value.

Example: If an investment has a 1% exit load if redeemed before the end of the year, and you redeem $100,000 before the end of the year, the exit burden will be 1% of the total redeemed amount. In this situation, the sum will be $1,000.

Each SIP installment is treated as a distinct investment in the case of SIPs.

Example: Assume you started a SIP in January 2017 and it will last through December 2017. We assume that this mutual fund has a 1% exit load for the first year following investing and no exit load after that. You will not be charged an exit load on investments made between January 2017 and April 2018 if you opt to redeem the entire amount in April 2018. However, because it hasn’t been a year since you invested the installments, an exit load will be applied to them after May 2017.

Is Systematic Investment Plan better than RD?

SIP has the potential to provide significantly larger returns than RD. The return on your SIP is determined by the mutual fund in which you invest. Debt mutual funds are regarded as low-risk, while equity mutual funds are considered high-risk. Mutual funds, unlike RDs, do not have a fixed rate of return.

Debt funds typically offer higher returns than RD and are also considered to be less risky. If you’re willing to take a bigger risk, consider setting up a SIP in a higher-risk stock mutual fund.

Is SIP good for the long term?

Yes. In fact, it is preferable to make a long-term investment in SIP. You begin investing whatever amount you are able to save rather than waiting for money to accumulate. Your money will be invested at all times in this manner.

Furthermore, investing for the long term ensures that short-term market volatility has no impact on your investment.

Is Systematic Investment Plan and mutual fund the same thing?

A systematic investment plan is a way to invest in mutual funds over time. Mutual funds can be purchased in two ways: as a lump sum or as a systematic investment plan. A lump sum investment is when you invest a significant sum of money in a mutual fund all at once. SIPs allow you to invest smaller sums of money on a monthly basis.

Which Systematic Investment Plan to invest in?

It is up to you to decide which SIP to invest in based on your needs. Small and midcap mutual funds are good options if you’re willing to take risks. Large-cap mutual funds, on the other hand, are a good option if you wish to take a moderate risk. If you want to be exposed to very little risk, debt mutual funds are a good option.

Investing in mutual funds through a systematic investment plan (SIP) is a fantastic way to get started for both new and seasoned investors. Before you invest, make sure you do your homework. You may plan your SIPs using this useful SIP calculator.