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You have planted a small plant in your garden when you water it every day, it gives you fruit in a few years. Mutual Funds also work in the same way. Mutual Funds are like a tree, to get the fruits of this tree, you have to water it through SIP. That is, if you want to create a big wealth from mutual funds, you have to invest for a longer period. Everyone wants to invest in mutual funds, but many people find the process of investing in mutual funds difficult. There are two types of investment methods available for mutual funds: SIP (Systematic Investment Plan) and lump sum. In today's blog, we will get detailed information about both these methods.

What is SIP?

A systematic investment plan is an investment option in mutual funds that provides investors with the facility of investing monthly, weekly or quarterly.

Why is SIP important in investing?

1. The power of compounding in SIP is an important tool of this investment. In this process, the returns received on the investment are invested back in the market.

2. SIP is a process that runs for a certain period, which creates a discipline in the investor.

3. When the market declines, the fund manager reinvests as per the opportunity. This rupee cost-averaging feature reduces the effect of volatility.

4. SIP gives us diversity and flexibility to invest in the market.

Types of SIP (Systematic Investment Plan):

1. Regular SIP:

This is a type of traditional SIP, which provides investment facilities to investors for a certain period. In this SIP, SIP can be done weekly, monthly, or every three months.

2. Top- UP SIP:

Through this SIP, investors can also increase the SIP according to their increased income.

3. Flexible SIP:

This is a type of SIP that provides investment facilities to investors according to their financial convenience. The main advantage of this is that when the market is down, new opportunities arise for investors.

4. Trigger SIP:

This SIP provides the facility of setting a trigger to start investing. Along with this, there is an option to shift from one fund to another.

5. Multi SIP:

Multi SIP allows you to invest in a single fund using different SIP plans. The main advantage of this is to reduce risk.

6. Sip with Insurance:

While investing financially through this SIP, health is also invested. Insurance cover is included in this.

How to start a SIP in India?

1. Choose a mutual fund:

Choose the right mutual fund by determining your risk tolerance and financial goals.

2. KYC Registration (KYC):

Complete your KYC with Aadhaar, PAN and bank details.

3. Choose SIP Plan and time-frequency:

You choose the right plan and SIP time frequency according to your financial capacity.

4. Auto Debit System:

Through this process, the SIP value goes from your account to the mutual fund.

5. Monitoring and Review:

Monitoring and reviewing the investment made is an important process.

Conclusion:

SIP is the cheapest investment option in the world, so SIP investment has gained special importance in India. At the same time, SIP provides the facility of investing in a simple, straightforward and minimum capital. SIP allows investors to build wealth in the shortest possible time.

1. Can I withdraw SIP at any time?

Ans: Withdrawal of SIP from mutual funds depends on the type of each fund. But almost all mutual funds provide the facility of SIP withdrawal. Exit load is imposed on it while withdrawing SIP.

2. Is SIP tax-free?

Ans: The taxes on each mutual fund also differ. For example, there is a tax exemption of up to Rs 15,0000 on ELSS funds. Similarly, STGT and LTGT are levied on the returns received.

3. What is the lock-in period for SIP?

Ans: Its lock-in period varies depending on the type of mutual fund. For example: 3 years for ElSS, 5 years for Tax Saving, and 15 years for Provident fund.

4. How much tax is there on SIP after 20 years?

Ans: Under the current tax law, Long-term Capital gain tax (LTGT) is levied on investments made for more than one year. No tax will be levied on gains up to one lakh. Capital gain of more than one lakh will be taxed at 12.5%.

5. How many years are good for SIP?

Ans: If you are investing for a period of less than three or 5 years, then you are less likely to get high returns. And if you invest for a longer period than this, compounding and Rupee Cost averaging give higher returns. Therefore, it is considered good to have SIP for at least 10 or 15 years.