SIP Charges

In 2024, investors in Systematic Investment Plans (SIPs) may encounter various charges, including e-mandate fees for automating payments, applicable taxes such as capital gains tax, and exit loads if investments are withdrawn before a specified period. Understanding these charges is crucial for effectively managing SIP investments and maximising returns.
EXPLORE FUNDS
What Are Systematic Investment (SIP) Charges in 2024
EXPLORE FUNDS
3 mins
14-September-2024

In 2024, charges associated with Systematic Investment Plans (SIPs) include an e-mandate fee, where some banks charge a one-time fee ranging from Rs 50 to Rs 236 for setting up automated payments. SIP returns are subject to capital gains tax, which varies based on fund type and holding period. Additionally, an exit load, typically 1% for equity funds, applies if investments are redeemed before a specified time, usually within a year.

Take a look at what these charges are:

Exit load

SIPs are a popular investment option mainly because they offer high liquidity, along with high returns. This means that you can withdraw from your SIP as and when you wish to. However, when you liquidate your SIPs, you need to pay a charge known as an exit load. This charge is a one-time fee and is expressed as a percentage of your total gains from the SIP. You only have to pay this charge if you exit the SIP prematurely. This means withdrawing from the SIP before the lapse of the holding period that the fund house has defined.

Transaction charges

This is another one-time fee that you need to pay if your investment in SIPs is over Rs. 10,000 at any given time. This charge amounts to Rs. 100 and is deducted in four consecutive instalments. You have to pay transaction charges along with your 2nd, 3rd, 4th and 5th instalments.

Expense ratio

Expense ratio in mutual funds is a measure of the total annual costs associated with managing and operating a mutual fund, expressed as a percentage of the fund's average assets under management (AUM). It includes various fees and expenses incurred in running the fund, such as management fees, administrative expenses, distribution fees (if any), and other operational costs. The expense ratio is deducted from the fund's returns before they are distributed to investors.

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Recurring charges or ongoing expenses

As the name suggests, these aren’t one-time charges. You have to pay recurring costs or ongoing expenses on the daily net assets of your mutual fund. It is important to note that the regulator outlines the extent to which these charges are to be levied, and your fund house can’t charge you more than the specified amount. The expenses are deducted from the net assets of the funds, after which the NAV is posted.

Understanding these three charges will give you a better idea of the total cost of investing in SIPs and compare them with the returns. Besides, it also helps you understand how transparent and minimal the charges associated with a SIP are, unlike several other options, such as ULIPs that bear multiple, complicated charges. Most importantly, with clarity regarding the charges that accompany a SIP, you will be able to understand whether or not this is an ideal investment option for you in terms of affordability. Moreover, it will also allow help you identify an investment amount that suits your needs.

Use the Bajaj Finserv SIP calculator to begin a new SIP, this will help you see your total invested amount, final maturity value, and earnings from your investment.

Conclusion

SIPs, or Systematic Investment Plans, offer a reliable and disciplined approach to investing in the market, potentially yielding high returns. While they provide flexibility for investors, it's important to be aware of the associated charges. Exit loads, transaction charges, and recurring expenses are part of the SIP investment journey, but they are generally transparent and minimal compared to other investment options.

Understanding these charges empowers you to make informed decisions about the affordability and suitability of SIPs for your financial goals. With the Bajaj Finserv SIP calculator, you can start your SIP journey with clarity, assessing your invested amount, final maturity value, and potential earnings.

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Frequently Asked Questions

What is the charge of SIP withdrawal?

The charge for SIP withdrawal is known as the exit load, typically a percentage of your gains if you exit before the defined holding period.

What is SIP Lock-in Period?

SIPs do not have a specific lock-in period, offering flexibility for investors to exit anytime, although certain mutual funds may have minimum investment duration recommendations.

What is hidden charges in SIP?

Hidden charges in SIPs usually refer to undisclosed fees, but SIPs are generally transparent about exit loads and recurring expenses.

Can I exit SIP anytime?

Yes, you can exit a SIP anytime without a lock-in period, but you may incur exit load charges if you exit prematurely.

What are the charges on SIP by banks?

Banks may charge a nominal fee for setting up and maintaining a Systematic Investment Plan (SIP) in mutual funds. These charges can vary from bank to bank.

What are SIP Withdrawal Charges in Mutual Funds?

SIP withdrawal charges in mutual funds may include exit load fees, which are applicable if an investor redeems or withdraws their investment before a specified period.

What is exit load in mutual fund?

Exit load in a mutual fund is a fee charged by the fund house when an investor redeems or withdraws their investment before a specified holding period.

Is SIP 100% tax free?

While SIP investments themselves are not directly tax-free, certain SIP variants like Equity Linked Savings Schemes (ELSS) offer potential tax benefits under Section 80C. However, returns from SIPs are subject to capital gains tax based on the holding period and the type of fund.

What is the charge of SIP mandate?

When initiating your SIP, the bank sends you this mandate. However, it's important to note that certain banks may impose a one-time fee, ranging from Rs 50 to Rs 236, for establishing an e-mandate.

What is the transaction charge for mutual funds?

A transaction charge is a one-time fee of Rs. 100 to Rs. 150, applicable for investments over Rs. 10,000. It also applies to SIPs exceeding Rs. 10,000 but is waived for investments below this threshold.

What is the expense ratio in mutual funds?

The expense ratio is an annual fee expressed as a percentage of a fund’s daily net assets, covering the costs of managing the mutual fund, such as marketing, administration, and fund manager fees.

Why do regular plans have a higher expense ratio than direct plans?

Regular plans have a higher expense ratio because fund houses pay commissions to intermediaries like brokers and agents. Direct plans, bypassing intermediaries, have lower costs, leading to a lower expense ratio.

What is the maximum expense ratio limit for mutual funds in India?

As per SEBI guidelines, the total expense ratio (TER) varies based on the fund's assets under management (AUM). It ranges from 1.05% to 2.25%, depending on the size of the fund, with additional allowances for sales beyond major cities.

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