What a SIP is
A SIP (systematic investment plan) is a way to invest a fixed amount in a mutual fund scheme at fixed intervals, for example once a month. An index fund copies the portfolio of an index instead of picking shares – see what an index is.
Direct plan, regular plan and costs
A scheme is offered in a direct plan and a regular plan. The direct plan has a lower expense ratio, because it excludes distribution expenses and commission, and no commission is paid from it.[2] AMFI publishes the expense ratios of mutual fund schemes on its website.[2]
SEBI's board approved a base expense ratio limit of 0.90% for index funds and ETFs, down from 1.00%. Statutory and regulatory levies such as STT, GST and stamp duty are charged on top, at actuals.[3] Small cost differences compound – see fund fees.
Tax on equity-oriented funds, tax year 2026-27
| Rule | |
|---|---|
| Units held 12 months or less (short-term) | 20% on the gain |
| Units held more than 12 months (long-term) | 12.5% on gains above INR 125,000 (1.25 lakh) |
| Tax year | 1 April to 31 March |
The figures are from the Income-tax Act, 2025 as amended by the Finance Act, 2026.[1] An equity-oriented fund invests at least 65% in equity shares of domestic companies listed on a recognised stock exchange.[1] Each monthly instalment buys units on its own date, so each has its own 12-month clock.
Example: you sell units held for more than 12 months with a gain of INR 200,000. The part above INR 125,000 is INR 75,000. At 12.5% the tax is INR 9,375.
Funds that invest abroad
A fund that mainly holds foreign shares does not meet the 65% domestic test, so the equity-oriented rates above do not apply to it.[1] Check the scheme documents for its tax treatment.
You can also send money abroad yourself. Under the Liberalised Remittance Scheme, resident individuals may remit up to USD 250,000 per financial year (April to March), including for overseas portfolio investment.[4] When remittances exceed INR 1,000,000 (10 lakh), the bank collects tax at source at 20% for purposes other than education or medical treatment.[1]
Deductions depend on the tax regime
The Act allows a deduction of up to INR 150,000 in a tax year for certain sums, including units of specified mutual funds.[1] Under the new tax regime this deduction is not allowed, so it only matters if you opt out of that regime.[1]
What it means for an index saver
- Pick the direct plan. It is the same scheme with a lower expense ratio.
- Tax comes when you sell. The tax above is on gains from transferring units, so holding lets the whole amount keep compounding – see the snowball effect.
- Count 12 months per instalment. Units bought recently are short-term even if your SIP is old.
Common questions
Do I pay tax each time my SIP invests?
No. The capital gains tax described here applies to gains from transferring (selling) units, not to buying them.
Is a direct plan a different fund?
No. It is a plan of the same scheme that you buy without a distributor. It has a lower expense ratio and its own NAV.
Sources & further reading
We cite independent authorities so you can verify everything yourself. Last reviewed 3 Oct 2026.