What is SIP Account?

Systematic Investment Plan (SIP) is a widely used method for participating in mutual funds. Establishing a SIP account facilitates the investment of a predetermined sum at consistent intervals into a mutual fund of your choice. To initiate a SIP account, you'll need to first select a mutual fund, fulfill the KYC requirements through the fund house or an intermediary. Afterward, you can pick the SIP frequency, determine the SIP amount, and arrange for automatic payments through a bank mandate (auto-debit). This approach instills discipline in your investment strategy, alleviating concerns about market timing.

How SIP Works?

Systematic Investment Plan (SIP) is a method of making consistent investments in a mutual fund by contributing a fixed amount at regular intervals. With SIP, you can acquire mutual fund units for the predetermined sum on a specified date each month. SIP investing operates automatically, eliminating the need for manual investments each time. Nevertheless, setting up a SIP bank mandate is necessary to enable this automated investment process.

What are the Different Types of SIP Available?

The different types of SIPs are:
1. Regular SIP–The most straightforward form of SIP allows you to invest a fixed sum at consistent intervals. You have the flexibility to select an investment frequency that suits your preferences, including options such as monthly, bi-monthly, quarterly, or half-yearly.
2. Top-up SIP–With this SIP, you have the option to incrementally raise your SIP amount over time
3. Flexible SIP–This category of SIP grants you the flexibility to modify your investment amounts. However, it's essential to notify the fund house about the updated SIP amount at least one week before the scheduled SIP installment date.
4. Perpetual SIP–When initiating SIP investments, you'll need to specify the duration of the SIP in the application form. If no tenure is indicated, it's treated as a perpetual SIP. Consequently, the SIP will persist until you provide explicit instructions to terminate it.
5. Trigger SIP–After the event trigger, you can establish a SIP date, make redemptions, or initiate switches in your SIP. SIP with Insurance: Some fund houses provide insurance coverage for SIP investments with extended investment durations. The initial insurance coverage typically amounts to approximately 10 times the initial SIP amount and increases gradually over time.
6. Multi SIP–You have the option to invest in various schemes offered by the fund house using a single instrument.

How to Calculate SIP Manually?

To calculate SIP returns manually you have to be familiar with the future value formula.
FV = P [(1+i)^n-1]*(1+i)/i
FV = Future Value of your SIP in mutual funds
P = SIP amount you invest in mutual funds
i = compounded rate of return
n = Investment duration in months
The returns are compounded for every SIP instalment.
Alternatively, you can use the XIRR function in an excel sheet to compute SIP returns.
Often, computing SIP returns manually can be a cumbersome process. You can estimate the potential returns from SIP within seconds using NiveshStar's SIP Calculator.

How to Calculate CAGR for SIP?

In the case of Systematic Investment Plans (SIPs), the cash inflows and outflows may vary, and they might not be equal or regular. Due to this irregularity, it's recommended to utilize the XIRR (Extended Internal Rate of Return) method to accurately calculate returns from SIPs. The CAGR (Compound Annual Growth Rate) method computes returns between two specific points, making it unsuitable for calculating SIP returns. However, CAGR remains useful for calculating returns from lump-sum investments. XIRR is a function commonly available in spreadsheet applications like Excel, and it enables you to calculate annualized returns for the duration of your SIP.

How Much Should I Invest in SIP?

The optimal investment amount for a Systematic Investment Plan (SIP) isn't fixed, as it's contingent on your individual financial situation, investment timeline, and objectives. Consequently, the appropriate SIP amount varies from one investor to another. It's essential to determine your specific goal, the target corpus you aim to accumulate, and the timeframe in which you want to achieve this goal. By doing so, you can calculate the suitable SIP amount for your needs. There are online tools available that can assist you in identifying the right SIP amount for your investment objective. For instance, consider exploring goal-based investing with platforms like NiveshStar, which streamlines the investment process.

What is the Minimum and Maximum Tenure of SIP?

SIP investments do not have a fixed minimum or maximum duration; the tenure is determined by your specific investment goal. Moreover, when considering equity mutual funds, experts recommend investing for a period of at least 3 to 5 years. Given that equity funds invest in stocks, which can be subject to fluctuations, longer investment horizons enable you to mitigate the impact of volatility and potentially yield substantial returns through the process of averaging.

Can I Increase My SIP Amount?

Certainly, it is possible to raise your SIP amount. Utilizing the Top-up or Step-up SIP feature enables you to periodically increase your SIP investment. When initiating your SIP, you have the option to select the top-up or step-up alternative within the application form and provide the necessary instructions. Additionally, NiveshStar permits you to enhance your investments at any point in time.

How to Redeem SIP Mutual Fund Online?

You have the option to access the mutual fund company's website using either your folio number or PAN number. Once logged in, you can choose the specific scheme and indicate the amount or number of units you want to redeem. After a successful redemption, the corresponding amount will be credited to your bank account. Additionally, if you've made your investment through an online platform such as NiveshStar, you can conveniently perform redemptions directly from their portal by logging in and selecting the desired scheme.

How to Stop My SIP?

You have the option to halt your SIPs directly through the AMC website. Log in to the fund house website, choose the specific SIP you want to terminate, and click on the 'Cancel SIP' option. The processing of this request typically takes up to 21 working days. Alternatively, you can cancel the SIP offline by contacting the AMC and completing a designated form. Additionally, if you made your investment through online platforms, you can cancel the SIP directly from their portal.

Can I Renew a SIP?

Yes, it is possible to extend the SIP before its scheduled end date. You must submit the renewal instructions at least 30 working days prior to the final SIP date. In case the SIP has already concluded, you can still renew it by supplying the SIP's folio number. The renewal process may require approximately 21 to 30 days to process the form and reinstate the SIP.

Is SIP better or a lump sum?

The decision hinges on your unique investment objectives and available funds. If you possess a substantial amount and seek an investment opportunity, you may contemplate investing a lump sum in mutual funds. On the other hand, if you prefer disciplined investments over a specified duration with a fixed amount, the Systematic Investment Plan (SIP) mode is a suitable choice. For a detailed comparison and guidance on selecting between the SIP and lump sum investment modes, please refer to our comprehensive guide.

Which is better FD or SIP?

The choice between FD and SIP, or the comparison of FD versus SIP, relies on the investor's goals, the nature of the investment solution, and the investor's risk perception. Numerous aspects can be used to evaluate these options, including returns, liquidity, taxation, investment objectives, and risk exposure. If an investor seeks a secure, fixed-interest investment, they may find FD appealing. On the other hand, investors willing to embrace market fluctuations linked to mutual funds can opt for investing through SIP. It is essential to meticulously compare both alternatives and select the one that aligns with your specific investment objectives.

Is SIP tax-free?

SIP serves as a mutual fund investment method, and the tax implications of mutual funds depend on their type and investment duration. It's essential to note that SIPs are not universally tax-free. If you invest in an Equity-Linked Savings Scheme (ELSS) mutual fund, the returns are indeed tax-free. However, when investing in equity mutual funds for a 12-month period, short-term capital gains apply, attracting a tax of 15% plus cess and surcharge. In contrast, holding your investment for over 12 months results in long-term capital gains, where a tax of 10% plus cess and surcharge is applicable if gains exceed Rs 1 lakh.
Now, consider investing in debt funds and withdrawing within 36 months, resulting in Short-Term Capital Gains (STCG) subject to the applicable slab rate. Conversely, withdrawing after 36 months of investment triggers Long-Term Capital Gains (LTCG) taxation at a rate of 20% plus cess and surcharge.
Effective from April 1st, 2023, capital gains from debt mutual funds are taxed according to the investor's income tax slab rate, regardless of the holding period. Consequently, the benefit of lower tax rates for LTCG in debt mutual funds is no longer available.