Tips to save IPO listing gains tax!
In the years 2023 and 2024, many IPOs brought huge earnings for the investors. But tax also has to be paid on this! What is the tax rule on booking listing gains from IPO? How can tax liability on listing gains be reduced? How will the tax be calculated on selling IPO shares?
Systematic Investment Plans, commonly known as SIPs, are the investment plans offered by mutual funds houses to invest a fixed amount in a mutual fund scheme at periodic time intervals, for instance, once a month compared to investing lump-sum. One can start with SIPs from as little as Rs 500 a month.
Investing in SIP is a very convenient method where your mutual funds get debited from your bank account every month through the standing instructions given to the bank without any need to write a cheque every month. The most significant benefit of investing through SIP is getting a rupee cost averaging benefit without thinking about volatility or timing the market.
SIPs are also referred being similar to recurring deposits, where investors deposit a small amount every month. However, the confusion starts when as an investor, you start relating both SIPs and recurring deposits similarly, which is not the case at all. The confusion does not end there.
As per the Association of Mutual Funds data in India, between the month of April and June 2021, around 21.36 lakh number of SIPs got discontinued. However, the data also includes genuine closing of schemes upon the tenure completion, but there are chances that many retail investors still keep redeeming SIP’s before understanding the correct concept.
Let’s debunk 9 myths when it comes to investing in SIPs:
1. SIPs only cater to small retail investors
SIPs are not for only small retail investors who cannot invest rather lumpsum in an investment scheme. It is incorrect to assume that as SIPs are just the method through which you can invest in mutual funds. It can be for anyone who wishes to invest daily, monthly or quarterly to help build their corpus to attain financial goals and objectives.
2. SIPs are different from lumpsum mutual funds
Well, the fact is that SIPs, as mentioned above, are just the method of investing in mutual funds. It does not imply that they are some different kinds of schemes and different from lump sum mutual funds investment style.
3. Lumpsum investments cannot be made through SIP account
Investing a lumpsum amount in your SIP account is possible. For instance, if you have a SIP account already and are investing, say Rs 2000 every month, and suddenly you have an excess of Rs 20,000 to save, you can boost your ongoing SIP with Rs 20,000.
4. I will be charged and penalised for missing SIPs
Unlike Equated Monthly Instalment (EMI), where you are penalised if you miss an instalment in case of SIPs even you miss instalment say due to insufficient bank balance, you will not be penalised. However, you will be charged penalty from the bank but not will be not penalised by the fund house.
Your folio account number remains active for further SIPs to debit from the bank account. Nowadays fund houses have started offering SIPs pause option where you can pause SIP for 1 to 3 months till your financial conditions improve.
5. Markets are too high to invest in SIPs
If the markets are too high, then starting SIP immediately is a correct decision as one can benefit from the rupee cost averaging as it balances out volatile market conditions in the longer run. Investors should not worry about timing the markets when they invest through SIPs.
6. You get a guaranteed return in an equity mutual fund if done through SIPs
This is again a myth that investing in equity mutual funds through SIPs will lead to wealth creation. One should select mutual funds as per their risk appetite and not as per the returns. The power of compounding work both ways in whatever category of funds you invest. That said, investing in SIP through equity mutual funds does not guarantee higher returns as such. Investment in SIPs should be made from the long-term horizon perspective.
7. Only choose monthly SIPs
The SIP helps you invest in mutual funds in a methodical way. Many investors believe daily, weekly, or fortnightly SIPs offer better returns than monthly SIPs. However, the frequency of SIPs has little effect on returns. Over time, the return difference between weekly and monthly SIPs is minimal. You can choose SIP dates for mutual funds at your convenience.
8. Through SIPs, you cannot lose investment
SIP is merely a method of investing in mutual funds, and the underlying fund’s risks remain the same. That is the reason it is prudent to invest as per your risk appetite. However, SIPs provide rupee cost averaging. You can gain from market volatility by buying less when markets are high and more when markets are low.
If the fund’s investment objective matches your risk tolerance and you are willing to stay invested for the duration of your goal, short-term volatility will not affect your investment.
9. You cannot change the initial SIP amount
This is a fallacy that goes against SIP’s advantage of flexibility. You may increase or decrease your investment at any time, as long as it does not fall below the minimum investment of Rs. 500 or Rs. 1,000. For doing so, you should enter top-up or step-up facility. Also, one need to check beforehand whether the fund house of that particular scheme provides top-up facility or not. That said, not all mutual fund houses provide top-up facility and again it depends on schemes to schemes.