How does SIP Plan work?

Mutual Fund

Systematic Investment Plan commonly known as SIP is an investment method in mutual funds. SIP plan is a user-friendly and hassle-free way of mutual fund investments. SIP is a pre-determined amount that you choose to invest in mutual funds at a regular time interval like- monthly, weekly, quarterly etc. SIP plan aims to create long-term wealth with planned investment method. It helps in inhibiting a disciplined way of saving and investing. 

Working of SIP Plan

Under the SIP plan, you are allowed to invest a certain amount of money to mutual funds at a pre-determined date. You can start a SIP plan with a minimum of Rs. 500 per month and can increase the amount as per your convenience. According to your flexibility, you can choose to auto-debit the SIP plan amount from your bank’s account.

To understand more about SIP plan, let’s have a look at how SIP plan works-

  • At first, you need to fill up SIP registration form and common application form and a cheque.
  • You need to mention the SIP amount to invest, investment tenure and the date on which you want to auto-debit the amount on the SIP registration form.
  • Do remember that SIP amount will vary for a different house and also schemes.
  • The investments will start at least 30 days. As SIP application form takes time to get processed.
  • The first investment will be subject to cheque realization.
  • After the application form is being processed, the fund house will auto-debit the specified SIP plan amount at the pre-determined date (working day) till the time you want.

Few Important things to know about SIP plan

  • There is no boundation on the eligibility criteria to invest via SIP. Anyone who aims to create wealth can invest via SIP.
  • You can invest via SIP in various kinds of mutual funds namely- equity mutual fund, tax-saving mutual fund, liquid funds and so on. 
  • If you invest in debt mutual funds for more than 3 years vis SIP, then you will enjoy the benefit of indexation on LTCG during redemption. Or else, the short-term gain gets added to your income and is taxed accordingly.
  • If you invest in equity mutual funds via SIP for more than 1 year, you will enjoy tax exemption on LTCG. Or else tax of 15% on STCG will be charged.
  • There is a certain exit load for mutual fund investments and becomes zero after that.
  • To close your SIP plan, you need to submit application for closure request to the fund house. It takes around 30 days time to close your SIP plan.

Benefits of SIP Plan

  • It helps to develop a disciplined saving habit
  • Do not create a burden on the investors
  • Flexible and convenient mode of investments
  • SIP plan helps in rupee-cost averaging
  • Also provides the advantage of the power of compounding
  • Gives high return 

Best SIP Plan to invest

In order to gain high return, you need to invest in best SIP funds in India. Here is the list of funds where you can invest via SIP to yield good return.

Name of the Fund 3-year return 5-year return
L&T India Value Fund 14.95% 21.64%
Reliance Small Cap Fund 19.20% 26.11%
ICICI Prudential Equity & Debt Fund 14.38% 15.57%
Mirae Asset Emerging Bluechip Fund 21.34% 26.27%
SBI Magnum Multi cap Fund 14.93% 18.99%

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