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5 Common Questions People Ask About SIP Investment

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These days, almost everyone knows about the perks of investing money than just saving it in a bank account. A mutual fund is a popular option people choose when planning to invest money for the long run. It is not uncommon to come across questions or queries about how to invest in SIP. While some people think of SIP Investments as a synonym to the various mutual fund schemes, others think of it as an avenue that is not fit for big investors. 

SIP or Systematic Investment Plan is not a scheme but a method of investing money through mutual fund schemes. Through a SIP, you can invest a specific amount in the funds of your choice regularly and thus, instil financial discipline. The popularity of SIP investments has increased manifolds in the last few years, thanks to the ‘Mutual Fund Sahi Hai’ campaign by Association of Mutual Funds in India (AMFI). Still, many people want to clarify their doubts about how to invest in SIP with the help of financial advisors like FinEdge.

Here are five common questions related to SIP investment in India:

1. Is It Possible to Discontinue Investing in SIP?

Stopping SIP may lead to different consequences, depending on the types of mutual funds you have chosen. As a part of knowing how to invest in SIP, it is good to discontinue SIP in some specific situations, such as:

  • When you have selected a wrong fund and want to redirect your investment
  • When you realize that the chosen scheme is underperforming for a while and may not help in fulfilling your goals
  • When you have already achieved the goals, and you want the capital to stay protected from market fluctuations
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2.  What are the Primary Benefits of Investing via SIP Route?

SIP offers a set of benefits that most of the investors look forward to. These are:

  • Investment Discipline

The very nature of a Systematic Investment Plan helps you follow the discipline to invest money for future needs.

  • Flexibility to Decide Investment Frequency

While stepping forward on your path to learn how to invest in SIP, you have the freedom to decide the amount as well as the frequency, be it monthly, quarterly, or annually.

  •  Rupee Cost Averaging

A SIP benefits you through cost averaging as well. It means that when the market is falling, more units are bought and vice versa, thus averaging out your investment value.

  •  How are SIP Investments Taxed?

Another crucial step to excel in how to invest in SIP is to get in-depth knowledge of SIP taxation, which is done on a pro-rata basis. It also depends on the type of mutual fund schemes you have chosen.

For tax purposes, each SIP instalment is considered a new investment and the holding period of each instalment matters. Also, the government has reintroduced Long Term Capital Gains (LTCG) on mutual funds in Budget 2018. 

4. Is There Any Risk Involved While Investing in SIP?

Investing through mutual funds via SIP does involve market-linked risk, the degree of which depends on the type of funds chosen. For instance, the risk is higher when you select equity funds over debt funds. 

However, it is possible to manage and reduce this risk by making the right decisions about how to invest in SIP. 

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5. How Should Beginner Investors Go About SIPs?

Mutual fund investment requires knowledge about how these funds work and various ways to select the right fund. Before שוק ההון, you must check your risk-taking capacity, set goals, and know about the importance of diversification. 

In the beginning, you might not have deep knowledge about all these aspects. However, you can make things easier for you by seeking help from financial advisory firms like FinEdge. Experienced advisors in these firms will help you plan how to invest in SIP carefully.

SIP investment can lead to significant returns over a long time if you learn about how to invest in SIP. Keep in mind that you must follow a disciplined approach and avoid panicking because of short-term market movements.