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Mutual Fund SIP

A Mutual Fund SIP (Systematic Investment Plan) is an investment process where one can invest a fixed amount of money at regular intervals in a particular Mutual Fund scheme to achieve long-term investment goals.

Mutual Fund SIP definition

A Mutual Fund SIP (Systematic Investment Plan) is an investment process where one can invest a fixed amount of money at regular intervals in a particular Mutual Fund scheme to achieve long-term investment goals.

By buying a Mutual Fund SIP (MF SIP), investors gain a hold of a professionally managed, vast pool of assets which helps them earn higher returns than savings or fixed deposit returns. In the Mutual Fund SIP, a specified amount of money gets debited every month or quarter from the investor's account, similar to a recurring deposit plan. This money is then invested into a portfolio of assets by Mutual Fund companies.

One of the biggest advantages of Mutual Fund SIP investments is that it takes care of the market volatility and brings in a disciplined form of investment. The investor is not too scared or excited by market fluctuations, thus making investments a logical and emotion-free process.

Individuals can use Mutual Fund SIP calculator to assess the returns they will get through the selected SIP.

Mutual Fund SIP Benefits

  • Regular disciplined investing.
  • Hassle-free investing
  • Higher returns with compounding benefits.
  • Can start SIP as low as Rs 500.
  • Tackles market fluctuations.
  • Variety of MF schemes to choose from based on your goal.
  • Low-cost investment. (Many brokers charge zero commission on MF investments)
  • Tax Benefit.

Mutual Fund SIP Investment Process

Investing in MF SIP is a simple and easy process. You can invest online through a broker or directly through the Asset Management Company.

Steps to invest in Mutual Fund SIP:

  • Open an account with a broker of your choice offering MF products.
  • Go to the Mutual Fund section or open the MF app (if separate).
  • Select the desired Mutual Fund scheme.
  • Enter the SIP amount, the desired date for SIP payments, and frequency.
  • Make the payment.

Refer Zerodha MF Review, Groww MF Review, Paytm MF Review for more details.

Mutual Fund SIP Rules

Refer to the below information about the SIP investments.

  1. Mutual Fund SIP lock-in period

    If you start a SIP in an open-ended MF scheme, it generally does not have any lock-in period except in the case of the Equity Linked Savings Scheme (ELSS), wherein it has a lock-in period of 3 years. The closed-ended funds also have a lock-in period of 3-5 years.

  2. Mutual Fund SIP cut off time

    The Mutual Fund cut-off time is as per the SEBI Mutual Fund Regulations. It remains the same for lumpsum or SIP mode of investment. The cut-off time for all the mutual funds is 3.00 pm except for the liquid and Overnight funds in which case the cut-off is 1.30 pm.

  3. Mutual Fund SIP missed

    You do not need to worry if you miss a SIP payment. However, if you miss three consecutive SIPs, your SIP gets automatically cancelled.

    There is no penalty charged by the fund house for the default. But sometimes the bank may levy charges for dishonouring the auto-debits.

  4. Mutual Fund SIP NAV

    The SIP units get allotted at the NAV of the day when the funds get credited to the Mutual Fund bank account.

    For example: If you have set a SIP for the 15th of every month, the funds should get credited to the MF bank account by 3.00 pm on the 15th, failing which you will get SIP units with NAV of the next business day.

  5. Mutual Fund SIP payment through credit card

    You cannot make Mutual Fund investments using a credit card.

  6. Mutual Fund SIP Exit load

    The exit load depends on the type of mutual fund. Generally, the mutual fund schemes meant for long-term wealth creation have an exit load so that investors get reluctant to make an early exit for their own benefit. Each fund has an exit period post which there is no exit load charged. You can refer to the Scheme Information Document for the exit load details.

  7. Mutual Fund SIP for minor

    You can start a SIP for a minor with the help of a legal guardian. However, the minor should be the sole holder of the account with no joint ownership.

  8. Mutual Fund SIP frequency

    You can choose to invest in SIP either weekly, monthly, quarterly, or six monthly. You can check with the broker/fund for the options available and choose as desired.

Mutual Fund SIP - How it Works?

Mutual Fund SIP allows you to invest in stock markets easily and regularly.

  • A pre-defined sum of money gets debited from your account at regular intervals.
  • The money collected by the fund house gets invested in different assets like securities, shares, government schemes, bonds, etc., giving you small ownership of these assets.
  • The profit of one type of asset negates the loss of other assets (if any), thereby protecting your investments from an overall loss in a widely distributed portfolio.
  • The fund house manager decides the investment strategy as to where and how much of the funds get allocated based on their experience and research to maximize returns.
  • You can check the Mutual Fund SIP statement to track the performance of your investment.

Types of Mutual Fund SIP

  1. Regular SIP

    A Regular SIP (conventional SIP) allows you to invest a fixed amount of money at regular intervals - weekly, monthly, quarterly, or half-yearly basis into Mutual Funds. An investor can choose the investment amount and frequency of payments. Once selected, you cannot change the investment amount in this plan.

  2. Top-up SIP

    In a Top-up SIP facility, the investors can increase their SIP investment by a fixed amount or percentage at predefined intervals. A Top-up SIP is also known as a SIP booster or Step-up SIP.

    For example, if you have a SIP of Rs 10,000 and wish to increase the investment amount by Rs 1,000 after every six months, you can use the Top-up facility and set the top-up amount or % as desired.

  3. Flexible SIP

    A Flexible SIP (Flexi SIP) allows you to change the SIP investment amount. You have an option to change the investment amount based on your financial situation or market condition.

    If the change (increase/decrease) is due to financial condition, you need to inform the fund house of the changes at least seven days before your SIP instalment date. However, if you wish to alter the SIP amount due to market conditions, the SIP amount is derived based on the pre-decided formula by the fund house.

  4. Trigger SIP

    A Trigger SIP helps set the trigger for your SIP instalment. You can set the trigger based on dates or pre-set events. For example, you can set to pay the SIP amount when the Sensex reaches an x level or when the NAV of a particular scheme touches the target or falls. Since the trigger is speculation-based, the Trigger SIP is suitable only for experienced investors.

  5. Perpetual SIP

    A Perpetual SIP is a SIP with no end date. You can keep investing in the Mutual Fund till you ask the Fund house to stop the SIP or redeem it.

  6. Mutual Fund SIP with Insurance

    Mutual Fund SIP with Insurance is a SIP type with an added feature of insurance offered by a few Asset management companies. This type of facility is available only for Equity Mutual Funds that are for a longer duration.

Mutual Fund SIP Calculator

The fund houses/AMC/brokers maintain various types of mutual fund SIP calculators that help calculate Mutual Fund SIP returns. The calculators may vary based on the SIP and Mutual Fund types offered by the broker or the fund house through whom you are making investments.

  1. Mutual Fund SIP return calculator

    Mutual Fund SIP return calculator is a simple calculator that helps calculate the returns on your investments. This calculator can help you assess the right investment amount to achieve a set goal based on the returns.

  2. Mutual Fund SIP brokerage calculator

    Mutual Fund SIP brokerage calculator helps calculate the commission cost on your SIP investment as charged by your broker. Many brokers like zerodha, Paytm, Groww offer brokerage free Mutual Fund investments.

  3. Mutual Fund SIP Step up calculator

    Mutual Fund SIP Step up calculator also known as Mutual Fund SIP top up calculator helps assess the returns on your investment considering the top-up factor.

Mutual Fund SIP Withdrawal

You can withdraw funds from your Mutual Fund SIP investments fully or partially online or offline (paper form) based on the facility offered by your broker/fund house. You need to stop your SIP first in case of early withdrawal or place a redemption request when your SIP matures.

Before initiating the SIP withdrawal process, take note of the below points in case of premature withdrawal:

  • Stop the SIP.
  • Check the applicable Exit load.
  • Ensure the lock-in period is over.
  • Assess the tax implications.
  • Check the minimum withdrawal amount.
Answered on

Frequently Asked Questions

  1. 1. Is Mutual Fund SIP safe?

    Mutual Fund SIP is one of the safe modes of investment that reap good returns in the long term and forms a habit of disciplined investing.

    The SIP allows you to invest as low as Rs 500 and is not very heavy on your pocket. With various SIP types and options available, you can increase, decrease, stop, and pause your SIP at your convenience. Many brokers also offer recommendations that help you invest in the best Mutual Funds that give handsome rewards.

    Moreover, when you opt for SIP, you invest a fixed amount irrespective of market fluctuations that take care of the market movement and average your investment value.

     

  2. 2. Is Mutual Fund SIP good or bad?

    Mutual Fund SIP is a good investment choice with various benefits as per below:

    • Disciplined investing.
    • Option to choose from various SIP types.
    • Light on pocket.
    • High Returns.
    • Option to pause/stop SIP if required.
    • Emotion free investments.
    • Handles Market Fluctuations.
    • Low-cost investment option.
    • Tax benefit in case of long-term tax savings and ELSS.

     

  3. 3. How to start Mutual Fund SIP?

    You can start a Mutual Fund SIP online. You need to open an account with a broker offering Mutual Fund services or register with an AMC/fund house to start SIP.

    Steps to start Mutual Fund SIP with a broker:

    • Shortlist a broker.
    • Open an account.
    • Access the MF trading platform offered by the broker.
    • Select the MF scheme for investment - Direct or Regular.
    • Set the SIP amount and frequency.
    • Make the first payment.

    Note: It is better to register for auto-debits/mandates that will make the SIP payments on the set date. This will save from any defaults and the need to remember the dates manually.

     

  4. 4. Can we pause Mutual Fund SIP?

    Yes, you can pause the Mutual Fund SIP for a maximum of three to six months based on what your fund house allows.

    You can pause the MF SIP online or offline by submitting SIP pause form. The form needs to be submitted 7-15 days before the next SIP due date.

     

  5. 5. How to stop Mutual Fund SIP?

    You need to place a SIP Stop or SIP Cancel Request online or offline to stop a Mutual Fund SIP using the Mutual Fund SIP cancellation form. If the SIP payment is scheduled from your bank account, inform the bank to deactivate the standing instruction to stop the SIP.

    You can redeem/withdraw the funds once you stop your SIP, provided it is not under a lock-in period.

     

  6. 6. Is Mutual Fund SIP tax-free?

    Mutual Fund SIP in Equity Linked Saving Scheme (ELSS) is tax-free up to Rs 1.5 lakhs with a lock-in period of 3 years.

    For all other Mutual Fund SIP, if the long-term capital gain is below Rs 1 lakh, it is exempted from tax, and the additional amount above Rs 1 lakh gets taxed at 10%. The short-term capital gains get taxed at 15%, irrespective of your income tax slab.

     

  7. 7. Are Mutual Fund and SIP same?

    Mutual Fund is an investment product while SIP is one of the modes of investment in a Mutual Fund.

    You can invest in Mutual Fund either by making a one-time payment popularly known as lumpsum mode and the other is by way of instalments known as SIP mode.

    With SIP mode, you can invest a certain amount of money at regular intervals in a Mutual Fund scheme.

     

  8. 8. Difference between Stock SIP and Mutual Fund SIP?

    Mutual Fund SIP vs Equity SIP

    Mutual Fund SIP Stock SIP

    Mutual Fund SIP is investing a set amount at regular intervals in a particular MF scheme.

    Stock SIP is investing a fixed amount in a stock/basket or buying a fixed number of stocks at pre-set frequency.

    Comparatively low risk as fund manager decides the allocation based on their research.

    High Risk as generally investors need to decide the stock.

    Moderate to High returns.

    Potential of very high returns.

    Suitable for new investors.

    Suitable for experienced investors.

    Investors can invest in different asset types

    Investment restricted only to Equity asset class.

    Low trading cost.

    High trading cost.

    Demat account may not be mandatory.

    Mandatory Demat account required

    Lock-in period of 3-5 years except for non-ELSS Open Ended Funds.

    No Lock-in Period

     


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