Question 1

What is a SIP and how does it help in wealth creation?

Accepted Answer

A Systematic Investment Plan (SIP) allows you to invest small amounts in mutual funds periodically. It leverages rupee cost averaging and the power of compounding to build a significant corpus over the long term, making it ideal for the average Indian investor.

Question 2

How are SIP returns different from Lumpsum returns?

Accepted Answer

SIP returns depend on the timing of multiple small investments, whereas Lumpsum returns depend on a single entry point. While Lumpsum can yield higher returns in a bull market, SIPs are better for risk mitigation in volatile markets.

Question 3

What is a Step-Up SIP and why should I use it?

Accepted Answer

A Step-Up SIP automatically increases your monthly investment by a fixed percentage or amount every year (e.g., when you get an annual salary hike). This can drastically accelerate your target corpus attainment compared to a regular flat SIP.

Question 4

How does quarterly compounding work in Indian FDs?

Accepted Answer

Most Indian banks like SBI and ICICI use quarterly compounding for Fixed Deposits. This means interest is calculated four times a year and added back to your principal, resulting in a higher 'Effective Interest Rate' compared to simple interest.

Question 5

Are mutual fund returns in India taxable?

Accepted Answer

Yes. Equity fund gains are taxed as STCG (20% if <1 yr) or LTCG (12.5% if >1 yr, with ₹1.25L exemption). Debt funds are taxed as per your income tax slab. Always verify with the latest Budget 2024-25 norms.

Question 6

Why is Indian inflation indexation important for long-term gains?

Accepted Answer

Indexation allows you to adjust the purchase price of an asset (like real estate or gold) for inflation, thereby reducing your taxable capital gains. This is a critical strategy for Indian taxpayers to preserve real wealth.

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