Mutual Fund Systematic Plan: What Is SIP, and Why Should You Invest For Long Term? Tax Rates On LTCG, STCG

One of the best ways to enter the mutual fund market is through systematic investment plans (SIPs). Over time, SIPs have emerged as a flexible, simpler, hassle-free, and disciplined form of investment for long-term wealth creation. Furthermore, SIPs are, in current market volatility, a better option to hedge returns regardless of challenging conditions. Its true nature of investment includes a fixed predetermined amount at a scheduled time to achieve long-term financial goals.

What Is a Systematic Investment Plan (SIP)?

SIP is a disciplined investment plan offered by mutual funds in India. Investors can invest in SIP with as minimum as Rs 500 amount. Investment can be done with fixed amount on weekly, monthly, quarterly and annually basis. There is also option for top-up in SIPs depending upon the market performance.

SIP is a very convenient method of investing in mutual funds through standing instructions to debit your bank account every month, without the hassle of having to write out a cheque each time, as per AMFI.

Over the past few years, SIPs has gained popularity.

SIPs Performance:

Investors contribution in SIPs has been to the tune of Rs 29,529 crore in October 2025, taking the cumulative contribution to Rs 1,96,208 crore in FY26 so far. In the previous financial year, SIPs contribution stood at Rs 2,89,352 crore.

Additionally, the number of SIP accounts has reached to new record highs. From April to October 2025, SIPs account stood at 9.88 crore for FY26. This is going to overtake the record high of 10.05 crore accounts in FY25.

"SIP Inflows continue to remain resilient with Annualised contribution surging 45% YoY this fiscal. As of Oct SIP assets account for 20% of industry AUM and investor appetite for long term systematic investing continues to rise. SIP inflows will continue to play even larger role as retail participation continues to move up," said Ankur Punj MD - Business Head Equirus Wealth.

Why Invest In SIPs For Long Term?

There are three big advantages of investing in SIPs for long-term.

1st: Rupee-Cost Averaging

SIPs one of the biggest advantage is rupee cost averaging. As per Yes Securities blog, in other words, you invest a set amount on a regular basis, regardless of market conditions. Hence, at high prices for your fixed investment, you get fewer units, and at low prices, you get more units. This way, over time, the average price you pay for your investments equals rupee cost averaging. It minimises the effects of the short-term price fluctuation in the markets.

2nd: The Compounding Power

AMFI FAQs highlighted that compounding is when the interest (or income) you earn is reinvested in the original corpus and accumulated corpus continues to earn (& grow). Every time this happens, your investment keeps growing, paving the way for a systematic accumulation of money, multiplying over time.

Example: A small amount of Rs 1000 invested every month at an interest rate of 8% for 25 years would give you Rs 9.57 Lakh! That means your investment of just Rs 3 Lakh would have grown three times over!

3rd: Disciplined & Systematic:

SIPs help make disciplined investments. As you're committed to investing a fixed amount regularly, you create a steady and consistent mode of investment. This discipline prevents one from making hasty decisions based on short-term variations in the market. It also makes you better prepared for the ups and downs of the market. This method of investing helps one learn to handle the changes in market conditions patiently and steadily, as per Yes Securities.

Systematic Investment Plan: Tax Rates!

Firstly, SIPs as Equity Linked Savings Schemes (ELSS) qualify for tax exemption o Rs 1.5 lakh under section 80C of Income Tax. However, equity mutual funds and debt mutual funds are not eligible for section 80C benefits.

Notably, for ELSS SIPs, the long term capital gains (LTCG) of less than Rs 1.25 lakh is taxed at 12.5%. The same is applicable on equity funds long term capital gains of less than Rs 1.25 lakh. LTCG are those gains which are held for more than 12 months.

If you are booking gains in equity SIPs in less than 12 months, then those will be called as short term capital gains (STCG) which have a much higher tax rate of 20%.

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