Comprehensive SIP Guide

A SIP (Systematic Investment Plan) is a method of investing a fixed amount of money at regular intervals, typically into mutual funds. Think of it as a disciplined way to save and invest, much like a recurring deposit at a bank, but with the potential for higher returns. Instead of making a single large, one-time investment (known as a lump sum), a SIP allows you to invest a smaller, predetermined amount—often as low as a few hundred rupees—on a weekly, monthly, or quarterly basis. This amount is automatically debited from your bank account and used to purchase units of a mutual fund.

Systematic Investment Plan (SIP)

A SIP allows investors to contribute fixed amounts at regular intervals rather than making a lump-sum investment. This approach promotes financial discipline, reduces the impact of market timing, and leverages rupee cost averaging—buying more units when prices are low and fewer when prices are high. Over time, this can potentially lower the average cost per unit and smooth out investment returns.

Tax Considerations

Equity-Linked Savings Schemes (ELSS) offer tax benefits under Section 80C of the Income Tax Act, allowing deductions up to ₹1.5 lakh annually. However, these funds come with a mandatory 3-year lock-in period. For other mutual funds, capital gains tax applies based on holding period: Short-Term Capital Gains (STCG) for equity funds held less than 12 months is taxed at 15%, while Long-Term Capital Gains (LTCG) above ₹1 lakh are taxed at 10% without indexation.