Popular SIP Questions Answered For You

By | April 8, 2019

Still confused about SIPs? Maybe these answers will clear your mind!

Systematic Investment Plans (SIPs) have been around for a while, but many of us are still confused about certain aspects of it. Below are some popular SIP-related queries answered for you as you welcome the new financial year.

How exactly are SIPs taxed?

The answer is first-in-first-out. Let’s understand this better with an example. Let’s say you’ve made 12 SIP instalments during the year and you then decide to redeem a part of the investment – in this case your initial SIPs will be redeemed first.

In order for your SIP to considered as a long-term capital gain, each SIP should complete at least one year. If it’s equity, long-term gains above Rs. 1 lakh will be taxed at 10% whereas short-term gains will be taxed at 15%

What is the best way for first-time investors to go about SIPs?

  • You can invest online by visiting the website of the Mutual Fund company’s website (depending on which one you choose)
  • Keep your KYC documents handy
  • If you’re more comfortable going about the process offline, you can always get in touch with an agent who will help you through the entire process.

Additional Reading: Why You Should Keep Your SIP Investment Simple

Can I set up auto-debits towards SIPs? If yes, how?

Most Mutual Fund companies support this setup. If you wish to enable auto debits from your bank account, just visit the website of the fund house. Once you’re there, choose the fund in question and share details such as period of SIP as well as the amount.

Your fund company should then share a URN number with you. Make a note of it. Now log in to your bank account via net banking and enter this number there. This is usually all you need to do to set up an auto-debit.

Additional Reading: 4 Reasons Why You Should Adopt The SIP Route When Investing

Some people advise to never stop an SIP. Does that make sense?

Not really, you can consider stopping your SIP in any of the below scenarios:

  • If you feel you’ve chosen the wrong fund and want to redirect your investment
  • If you notice that a fund you’re investing is has been performing badly for quite a while
  • If you have already met your financial objectives as this will protect your fund from future dips if any

How do I identify an under-performing fund?

It’s simple, really – just analyse their returns over the past 5 or 10 years. If you see a sure-shot drop here, then you can be sure it’s an underperformer. Though SIPs are a safe investment, they won’t work out if you’ve chosen the wrong funds.

Additional Reading: Want To Be Rich? Step Up Your SIP Periodically

What are the main benefits of SIP?

In comparison to other investment avenues, SIPs do offer a desirable set of benefits like:

  • Cost averaging – This means that more units are bought in a falling market and fewer units are bought in a rising market
  • Low risk – in comparison to playing the stock market directly, SIP is a comparatively low-risk investment
  • Savings habit – The very nature of SIP builds a discipline of saving money, which is useful for general financial well-being
  • Pre-decided frequency – You as an investor can decide the amount as well as the scheme to invest in

We hope these answers have given you clarity and made the concept of SIP more approachable for you. For more on investments and all things finance, visit our website.

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Category: SIP

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