A SIP is a systematic investment plan. You tell a mutual fund to take a fixed rupee amount on a date you choose, usually every month, and it allots units at that day’s net asset value.
The amount is fixed. The number of units is not. When the price is high you get fewer units. When it is low you get more. That is the averaging people mean. It does not guarantee a gain, and it does not protect you if the fund falls and stays down. It only stops you from putting the whole amount in on one day.
A SIP is not a separate tax product. Equity-fund units are taxed when you sell them, under section 196 if the holding is short-term and section 198 if it is long-term. The ₹1,25,000 exemption is for the year you sell, not for each year you invested. Each instalment has its own purchase date, so a sale can be part short-term and part long-term. Debt funds bought on or after 1 April 2023 are taxed at slab rates.
The return you type is yours. AMFI describes what a SIP is. It does not notify a yearly rate the way the Finance Ministry notifies PPF.
A worked example
The SIP calculator takes ₹10,000 a month for 15 years at 12%, with no yearly step-up. You invest ₹18,00,000. The estimated value is ₹50,45,760. The estimated gain is ₹32,45,760.
If every unit were sold in one later year, the engine’s tax, cess included, is ₹4,06,330, and the value after that tax is ₹46,39,430. That tax uses section 198 for units held more than 12 months and section 196 for the last year’s units. It does not apply your slab or surcharge, because the rest of your income is unknown. Type a different rate and both the maturity and the tax move.
One percentage point less than 12%, over the same 15 years, produces a maturity of ₹45,88,576. The gap of ₹4,57,184 is what a one-point drag, such as a higher expense ratio or a lower return, costs on this plan. The SIP calculator is the place to change the rate. The guide compares this path with putting the money in at once.
Mistakes people make
- Reading ₹50,45,760 as a promised maturity.
- Assuming each year’s SIP gets its own ₹1,25,000 exemption. The exemption is for the year you sell.
- Stopping the SIP because one month’s NAV was high. The fixed rupees buy fewer units that month. That is the design.
- Comparing a one-year XIRR with this 15-year projection.
- Treating an ELSS SIP as if the whole 3-year lock ended with the first instalment.
The tax section
A SIP is not named as its own charging section. The units are taxed under section 198 (this was section 112A) or section 196 (this was section 111A) when they are equity-oriented. The capital gains guide is that step. An ELSS deduction, old regime only, is section 123 (this was section 80C).
Questions
Does a SIP guarantee a gain?
No. The amount is fixed. The number of units is not. The SIP calculator at 12% turns ₹10,000 a month for 15 years into ₹50,45,760. That rate is an assumption, not a promise from the fund or from AMFI.
Is each SIP instalment taxed when I invest?
No. Equity-fund units are taxed when you sell. The same projection, if every unit is sold in one year, shows tax of ₹4,06,330 and a value after tax of ₹46,39,430. The ₹1,25,000 exemption is for the year of the sale.
Is a SIP in an ELSS different?
Each ELSS instalment is locked for 3 years from the day it is allotted. The tax deduction, if you are in the old regime, shares the ₹1,50,000 cap. The new regime does not allow that deduction.
Sources
Figures checked 28 Oct 2026.