Systematic Investment Plan (SIP)

Answer: Bank Fixed Deposits give you guaranteed returns (based on the applicable interest rate of the FD) with principal protection subject to solvency to the bank itself. Mutual funds give no assurance of returns or even capital protection. You should be aware of the risks before investing through SIP investment. You should invest according to your risk appetite and investment goals.

Answer: Yes, you can start your mutual fund SIP with just Rs 500 investment. Consult with your mutual fund distributor who can help you to know, which AMCs offer SIP plans starting with Rs 500. However, SIP investment or even lumpsum in ELSS mutual funds can be started with Rs 500.

Answer: You can withdraw or redeem your SIP investment (except SIPs in ELSS funds) partially or fully anytime. However, your SIP withdrawals or redemptions may be subject to exit loads, if withdrawals or redemptions are made within the exit load period. You should refer to the Scheme Information Document (SID) to know the exit load structure of your scheme. As far as Equity Linked Savings Scheme (ELSS) is concerned, these mutual fund schemes have a lock-in period of 3 years. If you are investing in ELSS through SIP, each SIP instalment will be locked in for 3 years from the instalment date.

Answer: Redemptions in SIPs may not be tax free. Taxation of redemptions in mutual SIPs depends on the type of the scheme and when redemptions are made. In SIP investment, the principle of First in First Out (FIFO) applies for taxation; you should consult with your tax consultant or chartered accountant to understand how FIFO will be applied for taxation of redemption proceeds in SIPs.

Taxation of redemption proceeds in SIP mutual fund also depends if the scheme is an equity fund or non equity fund; consult with your financial advisor to know which funds are treated as equity or non equity funds for taxation purposes. Short term capital gains in equity funds are taxed at 15%, while long term capital gains up to Rs 1 lakh is tax free in a financial year and taxed at 10% thereafter. Short term capital gains in non equity funds are taxed as per your income tax rate, while long term capital gains are taxed at 20% after allowing for indexation benefits. If you are investing in IDCW (dividend) options through SIP investment, then IDCW (dividend) payments will be taxed as per your income tax rate, both for equity and non-equity funds.