#AskUsAnything: Spotting Pseudo SIPs; Post-appraisal portfolio revisions; Reinvesting in ELSS

#AskUsAnything is our series where we answer questions about investing and personal finance. Probably they popped up in your head too, but you didn’t know whom to ask. In this part, learn how spot a pseudo SIPs, or SIP like investment options; how to revise portfolio when you get a hike after appraisal; and the strategy to invest in ELSS.

I’ve seen some new apps with SIP-like investment options while offering more convenience in withdrawals and cancellations. How to know if these SIPs are real?

Supreet Mandala, Coorg

Nowadays many online platforms provide SIP-like investments for ease of use, which is just lump sum masquerading as SIPs. Just like your standard SIP, pseudo SIPs also debit your amount every month or week. However, the fund house needs to mark your investment as a systematic purchase for it to be considered as a SIP. They might restrict the next SIP or additional lump sum, and these pseudo SIPs won’t work or make a difference in your corpus size or return.

One way to spot pseudo SIPs is that Minimum SIPs are generally lower than lump sums. Many AMCs offer SIPs on most dates and most schemes.

Here’s how the usual SIP process goes:

SIP is a contract between you, your bank, and the fund house. Once you set up a SIP, the bill is queued up a few days in advance with your bank for a fixed amount for the set date. The bank then debits the amount on the SIP date and forwards it to the fund house post which AMC allots you MF units.

The platforms which are offering instant activation and cancellation of SIP are likely to be pseudo SIPs.

I got a 30% raise last month. Should I up my SIPs? My portfolio is only a year old and mostly comprises Index funds & ELSS.

Aparna Upadhyay, Mumbai

Congratulations on your raise! We generally advise that people increase their SIPs by the same % as their raise. This one small step, done every year can lead to huge differences in your retirement kitty or personal wealth. If not the entire amount, even the SIP that is increased 10% every year for 20 years should double your corpus. It is a great personal finance discipline to imbibe.

Your portfolio still looks young and has enough opportunities for diversification. Ask yourself – Has my risk-appetite also increased with the income? Do my short-term or long-term goals need to be revisited?

Once you have that clarification, you can educate yourself on other fund options. Eg. for long-term goals and high-risk appetite, you can explore high-risk equity funds. For tax-saving benefits, you could consider having a good health cover, investing in ELSS schemes, or invest in government schemes like PPF, EPF & VPF. For emergency fund, you can consider liquid funds, FDs or RDs.

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My ELSS plan has completed 3 years. My friend suggested that I switch to some other ELSS fund. Will there be any exit fee?

Meera Sah, Solan

You are eligible to withdraw ELSS funds after the minimum lock-in period of 3 years is completed. ELSS funds don’t levy any exit load. However, they aren’t tax free. The long-term capital gains of up to ₹1,00,000 a year are tax-free, but above this limit, there’s 10% Capital gain tax plus applicable cess and surcharge.

Strategy to switch funds is quite widespread among the DIY investors. It makes sense if your fund hasn’t performed well in those 3 years. If it has, you can consider staying invested or increasing the SIP amount instead depending on your strategy, goals and other requirements.