Micro SIP Mutual Funds

What is a Micro SIP for Mutual Funds?

A micro SIP allows investors to invest a small amount of money, as low as ₹100 or ₹250 a month, in the mutual fund of their choice. While a regular SIP generally requires a minimum investment of ₹500, a micro SIP not only makes investing accessible but also ensures the development of a disciplined investing habit.

Features of Micro SIP for Mutual Funds

• Extremely low minimum investment: A micro SIP in mutual funds allows for affordable investments and is tailored to be inclusive for students, daily wage earners, or first-time investors who cannot invest large sums of money every month.
• Simplified KYC and regulatory ease: As per SEBI regulations, a PAN card is not required for a micro SIP, and investors can fulfil their KYC needs using Aadhaar-based verification or any basic identity and address proof.
• Investment limits and frequency: The monthly maximum SIP is generally capped at ₹4000, while the quarterly limit is capped at ₹12000.
• Restriction on fund selection: Micro SIPs are generally restricted to growth plans to promote wealth creation and financial goals. Note that micro SIPs generally exclude Debt funds, small/mid-cap funds and sector/thematic funds.
• Incentives and cost: SEBI provides a ₹500 incentive to distributors after 24 instalments of a ₹250 SIP. This is done to promote small-ticket plans.
• Long-term orientation: It is recommended to invest in a micro SIP for 5 years to build a good corpus and develop a saving habit.

Benefits of Investing in a Micro SIP

• Regulatory Ease: Since the KYC for a micro SIP does not require a PAN card, it makes it easier for the investor to register their micro SIP.
• Financial Inclusion: Micro SIP for mutual funds also bridges the gap for the non-investor base, allowing them to invest in mutual funds of their choice through minimal investment amounts.
• Financial Discipline: Micro SIP also allows investors to develop a disciplined habit of investing. This is especially important for students who can start investing early for their future financial goals.
• Rupee Cost Averaging: Like SIP, Micro SIP also works on the principle of compounding and rupee cost averaging. Rupee cost averaging not only helps you beat inflation in the long run but also decreases the average cost of your units in the long run.
• Professional Management: The funds are managed by expert fund managers irrespective of the size of the fund.

Should You Invest in Micro SIP?

Micro SIP is one of the best ways to step into the world of investing.

• Beginner investors: Micro SIP can be the best gateway to step into the world of Investing. Starting small not only lets investors avoid risk but also allows for long-term wealth creation using a minimal amount of money.
• Individuals on a limited budget: Individuals who have a limited amount of money which might be considered small to start regular investing, can use micro SIP as a tool for investing in mutual funds.
• People wishing for financial discipline: Micro SIP also allows investors to develop a disciplined habit of investing. Individuals, including students and daily wage workers, can consider investing through micro SIP.

Taxation in Micro SIP

Note that micro SIPs are also taxed in the same manner as regular SIPs.

• Capital Gains Tax: Returns from micro SIP are also subject to taxation. The specific tax rate for the same depends on whether the returns are short-term or long-term.
• Fund-specific rules: Most Micro SIPs do not have a lock-in period. This means that the total fund value can be withdrawn at any time after taxation. However, equity-linked saving schemes that enjoy the EEE status under taxation laws have a lock-in period of 3 years.

SIP Vs Micro SIP

The following table lists the key differences between SIP and Micro SIP.

Conclusion

Micro SIPs in Mutual funds are a great way to step into the world of investing through minimum investment amounts and lower risks. Micro SIPs allow for inclusivity, making investment accessible to every section of society. You can read about the best investment plans and then choose the best plan for you and your financial goals.