If equity fund units are held for a tenure of more than 12 months, the gains generated are treated as Long Term Capital Gain (LTCG) for taxation. However, the tax implications of different types of mutual fund schemes are different.Īlthough all gains from Mutual Fund investments are classified as Capital Gains, the sub-classification into Short-Term Capital Gains and Long-Term Capital Gains is based on the kind of fund and the duration of investment. SIPs are no doubt the best way to invest in Mutual Funds, but before making your first investment knowing the tax implication is also important. So, the longer you remain invested, the better returns you will get with the power of compounding. So, basically, the money invested works harder for you to grow your investment corpus and help you meet your financial goal.Įxpert tip: Compounding works exponentially over time. Simply put, its return on returns + principal or 'earning income on the income'.
This is where the power of compounding comes to play! It refers to the process of 'reinvestment of returns' the same at the same rate in order to grow the principal amount year after year. SIPs help create wealth with small amounts: Systematic Investment Plans (SIP) help you to invest a fixed amount of money on a monthly basis which increases through market performance.So, you need to continue your SIPs for the long term to reap maximum benefits. The averaging effect works out better when considered over an extended period since bear and bull conditions (positive and negative market situations) can last for long periods-even years, at times.Įxpert tip: Rupee cost averaging is more likely to work over the long term. This helps in doing away with the volatility in the market since it smoothes out ups and downs. Of course, when the prices rise, the same amount will purchase fewer units. This ensures that when the market falls, you get to purchase more units with the same amount of investment. SIPs provide the benefit of Rupee Cost Averaging: When you invest a fixed amount of money every month in mutual funds through SIP, you keep investing irrespective of the market situation.There are no lock-in periods for the SIP route of investing.Įxpert tip: Only Tax Saving Mutual Funds have a lock-in period of 3 years and not other MFs. Moreover, you can skip an installment & cancel or modify your SIP whenever you want. SIPs have total flexibility: SIPs provide complete flexibility on investment amount, choice of monthly and quarterly investing & tenure of investment.So, there is no need to worry about the market's ups and downs. Investment takes place irrespective of the market situation and money is invested in regular installments and at different pricing which helps in lowering cost. No need to time the market: Since this is a regular automatic monthly investment, there is no need of timing the market.
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This eliminates manual intervention required for investment. Automated investment brings discipline: Once SIP is set up, the amount is automatically deducted from your bank account and invested in a mutual fund of your choice.It also spreads the risk over time rather than investing in a lump sum. You can start a SIP with a low amount of money: You can start a SIP with an amount as low as Rs.100, which makes it an ideal way for your first investment.The most important benefits of investing through the SIP route are:
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