Raksha Bandhan 2026: Thinking of gifting cash to your sister? A mutual fund SIP could help build long-term wealth

Raksha Bandhan is traditionally associated with gifts, sweets and celebrations, but the occasion can also be an opportunity to give a sister a gift that continues to grow long after the festival is over. Instead of giving cash or a conventional gift, one could consider starting a mutual fund SIP for their sibling, particularly if the sibling is a first-time investor.

A SIP not only puts money to work over the long term but can also encourage the habit of regular investing and allow compounding to work over several years. However, the choice of fund, investment horizon and tax implications need to be considered before making such a gift.

A mutual fund SIP allows you to invest a fixed amount regularly in a chosen fund, making it a disciplined and convenient way to create wealth over time. Starting a SIP today for your sibling — even with a modest amount — can grow into a significant corpus over the next 10–15 years thanks to the power of compounding.


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Can a small SIP become a sizeable corpus?

The potential benefit of gifting a SIP becomes more visible when the investment is allowed to compound over a longer period. The eventual corpus will depend on the amount invested, investment period and returns generated by the fund.

Nilesh D Naik, Head of Mutual Funds, PhonePe told ETMutualFunds that gifting is a personal choice and cannot be generalised, but a mutual fund SIP is an option worth considering. He said it can help improve the financial habits of loved ones, particularly those who have not yet invested in mutual funds. While a traditional gift offers instant gratification, a mutual fund SIP can provide long-term benefits.

At an assumed annual return of 10%, a Rs 5,000 monthly SIP could grow to around Rs 10.07 lakh in 10 years, Rs 20.08 lakh in 15 years and Rs 36.20 lakh in 20 years. For a Rs 10,000 monthly SIP, the corresponding corpus could be around Rs 20.15 lakh, Rs 40.16 lakh and Rs 72.40 lakh, respectively. Note, these figures are illustrative and rounded as per the expert's calculations.

Jasmeet Singh, Executive Director, Anand Rathi Wealth Limited shared with ETMutualFunds that a SIP can be a more meaningful long-term financial gift than cash or a conventional present. He said a SIP is not limited to the money gifted today and can help build an investing habit and create long-term wealth. SIPs can also encourage financial discipline and benefit from rupee-cost averaging.

According to Singh's illustration, a Rs 5,000 monthly SIP could become around Rs 11.6 lakh in 10 years, Rs 25.2 lakh in 15 years and Rs 50 lakh in 20 years. The total amount invested would be Rs 6 lakh, Rs 9 lakh and Rs 12 lakh, respectively.

Which mutual fund category should you give and New SIP or top-up an existing?

Once an investor decides to gift a SIP, the next question is which mutual fund category should be selected. A first-time investor may not need multiple funds, while someone who already has several SIPs could benefit more from reviewing the existing portfolio than simply adding another scheme.

Singh said first-time investors can consider diversified equity fund categories such as market-cap-based categories and strategy-based categories including value, focused and dividend-yield funds. The objective, he said, should not be to add multiple funds merely for diversification. If the sibling already has several SIPs, the existing portfolio should first be evaluated for gaps or excessive overlap.

“If the current portfolio is adequately diversified, topping up an existing fund could be a more suitable approach than starting another SIP. A new category can be considered if there is a gap in market-cap or investment-strategy exposure,” Singh further said.

Naik said categories such as flexi cap, large cap, large and midcap and value funds may be suitable for new investors and for investors who already have multiple SIPs, the choice should depend on their existing portfolio and asset allocation.

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Should the fund choice change with the investment horizon?

The investment horizon is another important factor. A fund that may be appropriate for a 20-year goal may not necessarily be suitable for a five-year goal, particularly for a conservative investor.

Naik said investors with horizons of 10 years or more can consider categories such as flexi cap, large cap, large and midcap and value funds. For a five-year horizon, particularly for more conservative investors, hybrid categories such as balanced advantage funds can also be considered.

Singh said the fund selection should ideally become more growth-oriented as the investment horizon increases. For horizons above three to five years, he suggested considering an asset allocation of around 80:20 between equity and debt, with the equity allocation spread across diversified equity categories.

On the question of starting small versus investing a lumpsum, Singh said the decision would depend on the investor's available capital. Those with a sizeable amount available and a long investment horizon can consider a lumpsum investment, while those without a large amount upfront can start with a small SIP and gradually increase it as their income rises.

He said even a Rs 1,000 - Rs 2,000 monthly SIP can be increased through a 10-15% annual step-up. According to his illustration, a Rs 1,000 monthly SIP with a 10% annual step-up could grow to around Rs 10 lakh over 20 years.

Who pays tax when a mutual fund is gifted?

Tax treatment is an important consideration when gifting mutual fund investments. If one gifts a mutual fund to his sister, who is liable to pay tax on capital gains generated from a mutual fund gifted.

Singh said a mutual fund gifted to a sibling is not taxable as a gift because a brother or sister is considered a relative under income-tax provisions. However, when the recipient eventually sells the units, the capital gains tax liability would apply to the sibling who owns and sells the investment.

For example, if one sibling purchases mutual fund units for Rs 10,000 and later gifts them when their value has risen to Rs 20,000, there is no immediate tax on the gift. The original cost is carried forward to the recipient. If the recipient subsequently sells the units for Rs 25,000, the resulting capital gain would be taxable in the recipient's hands.

Naik similarly said capital gains accrue from the date of purchase and the recipient would be liable to pay tax on the capital gains when the investment is redeemed.

For a Raksha Bandhan gift, therefore, a mutual fund SIP can go beyond the traditional idea of a one-time present. The bigger benefit may lie in helping a sibling start early, develop an investment habit and give compounding more time to work. However, the fund category should be chosen after considering the sibling's existing portfolio, financial goals, risk profile and investment horizon.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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