What is SIP in Banking?

If you’re looking to deposit money into your bank account, you may have come across an option that’s called SIP (or Systematic Investment Plan). What does this mean? How does it differ from standard deposits, and what are the benefits of SIPs? In this article, we’ll explain what SIPs are, how they work, and how you can use them to invest in stocks without doing all the work yourself

What is SIP in Banking?
What is SIP in Banking?

What is a SIP?

A SIP, or Systematic Investment Plan, is essentially a type of investment plan that allows you to regularly contribute money towards a specific asset or group of assets. For example, if you set up a SIP with your bank to automatically invest $200 every month into a mutual fund of your choice (to invest in stocks), each time you make a deposit, they will match it with an additional deposit.

The overall goal of using these plans is to slowly build up wealth over time through consistent investments and dollar-cost averaging.


There are several advantages to using a SIP. For one, you’ll be able to plan out how much money you want to invest each month, which means there will be less chance of overspending or forgetting about your investments.


Additionally, your money will automatically be set aside and ready for investment at regular intervals—no need to worry about remembering to deposit each month!

Can you invest more than 1 lakh per year through SIP

In a nutshell, investing through SIP means that you invest a fixed amount regularly (monthly, quarterly or yearly) for a certain time period. An investor can invest more than 1 lakh per year through SIP for mutual funds and also for insurance policies.


However, investing more than 1 lakh per year via the SIP route is not allowed for bank FDs (fixed deposits). For banks’ FDs, too, investors can only invest 1 lakh per financial year.


In the case of mutual funds, there is no limit on the investment amount. However, for insurance policies, you can invest a maximum of 1 lakh per year through the SIP route.


Moreover, if you are investing via the ELSS (Equity Linked Savings Scheme) scheme, then also there is no limit on how much you can invest per year as long as your investment period is five years or more.

Also Read : The 10 Biggest US Banks

Should I invest in SIP as an NRI?

While we should avoid going overboard with investments, it can be comforting to know that money is working for you and not just sitting idle. One of the safest ways to do that is through a Systematic Investment Plan (SIP). The basic idea behind SIPs – which means ‘Systematic’ and ‘Investment’ together – is that instead of investing a lump sum all at once, one invests a certain amount on a monthly basis. So if you have Rs. 50000/- you could invest Rs.


There are several advantages to investing via a SIP. The biggest advantage of investing through a Systematic Investment Plan is that it automatically reduces risk.


Since you are investing smaller amounts every month, you can spread your money over more stocks. As a result, even if one or two investments don’t work out well, they won’t have a significant impact on your returns.

How much tax do I pay while investing through SIP?

If you’re investing through a Systematic Investment Plan (SIP), you’re subject to two types of taxes. The first tax that occurs when you invest through a SIP is Tax Deducted at Source (TDS). However, with equity funds, there is no TDS on long-term capital gains.


The second tax that happens when you invest through a SIP with equity funds is called Short-Term Capital Gains Tax (STCG). STCG depends on how long you’ve held your shares. If you’ve held them for less than 12 months, your capital gains are considered short-term and fall under STCG.

When should I withdraw my investment from the Mutual Fund

Mutual funds typically allow investors to make withdrawals from their accounts at any time during trading hours. If you are planning to make regular withdrawals from your mutual fund account, it is better to choose a Scheme that offers No-Load Fund Option (NLFO). Withdrawals under NLFO are subject to certain conditions.


You can make withdrawal requests on any working day. However, withdrawals will be processed only on a business day, and you have to wait till the next business day for the completion of processing and crediting of funds to your bank account.


For example: Suppose today is Saturday, and you want to withdraw money from your Mutual Fund Account, then the request will be accepted by AMC(Asset Management Company), which looks after the portfolio of Mutual Funds.

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