Investment is the best way to grow your money and to fulfil your future needs. As savings are never enough and money never grows when just kept in your bank accounts and pockets. It is a fact that your savings will not be enough to live a happy life financially in future when the responsibilities grow. Talking about investments, there are many investment plans available in market but SIP with mutual funds is the one which is now a days considered best among all the investment plans.
Understanding SIP!
Systematic Investment Plan commonly known as SIP is basically a mode of investment with mutual funds. It is a long term investment plan generally with the tenure of 10 to 15 years, where one can invest their money periodically which can be monthly or quarterly. Generally when we invest anywhere, there is a risk factor involved in it which depends on the market. But here with SIP there is no such risk factor. Whatever is the market, where there is a sudden up or down you will get the particular amount at the end of the tenure which you were expected to receive against your monthly or quarterly payments.
An SIP is an amount, which allows one to invest for a continuous period of time at regular intervals, generally on a monthly basis. Using SIP, a person who is investing buys a particular units of a scheme. SIP help investors to bring a discipline to their investment methodology which is totally risk free.
When can one start SIP?
One can start SIP any time in an open-ended mutual fund scheme. For this the thing one need to do is fill up the application form along with the SIP mandate and submit it to the point of acceptance. The bank takes 10 to 30 days to register the customers SIP mandate and to start it –
- The first thing one need to do is select a mutual fund scheme which is best suited for your needs, investment objectives, financial goals and all.
- Secondly Fill in the Application Form / SIP form carefully mentioning the name of the scheme and other required details.
- Provide your NACH mandate.
- In case if your KYC is not done, fill in the KYC form and then apply.
- One can hand over the filled form in the office of mutual fund distributor / relationship manager / agent / investment adviser or one can even directly submit it to the Registrar and Transfer Agents (RTAs) / AMC.
In case you decide to SIP online. You need to log on respective mutual fund house’s website. But while buying the mutual funds make sure that you choose only direct plans.
Advantages of Investing through SIP
SIP is Pocket Friendly
SIP allows you to invest in chunks not in bulk this facility with SIP makes it pocket friendly. There is no compulsion that you need to invest a big amount, you can even start SIP with a minimum of INR 500 monthly.
SIPs Enables Rupee-cost Averaging
It’s a fact that SIP works better than other investment plans available in the market which allows lump sum payment, and this is because of rupee-cost averaging. Under the rupee-cost averaging one can typically buy more of a mutual fund unit when the prices are low, and similarly one can buy fewer mutual units when the prices are high. This contributes to a good discipline. This forces one to commit cash at market lows, when many other investors in the market are wary and exiting the market. On the other hand it enable one to lower the average cost of their investment.
SIP have the Power of Compounding
Under a SIP one’s money is compounded that means its gives you more return at the end.
Suppose you invest INR 2000. Per month in the SIP for 10 years. So at the end of the tenure you will be investing INR. 2,40,000 and the total money you are going to get at the maturity is INR. 22,58,984. So the yearly return you will be getting here is 35.7%.
| Amount Invested monthly | Total Duration
(years) |
Total Investment | Expected Return in percentage (%) | Total Return |
| INR. 1000 | 10 years | INR. 1,20,000 | 15% | INR.2,78,657 |
| INR. 2000 | 10 years | INR. . 2,40,000 | 15% | INR. 5,57,315 |
| INR. 5000 | 15 years | INR. 9,00,000 | 16% | INR.37,42,900 |
| INR. 10000 | 18 years | INR. 21,60,000 | 16% | INR. 1,25,23,626 |
Best for Financial Goal Planning
Everyone have some financial goal whether it be to purchase a home or to give best education to their children, to have a retirement home or it be the child’s marriage. All these dreams needs huge amount of money which can be fulfilled easily with the help of SIP.
SIP Provides Flexibility
Under SIP, the amount you invest periodically can be changed at any time according to your wish. The benefit you get here is that you progress in your career and your income grows, you can increase your investment amount when you progress in your career and when your income grows. In this way you can increase the value of your growing returns as well. In addition to this, there is no such lock-in period in SIP which exists in recurring deposit and Fixed deposits scheme with banks.
Are SIP Returns Taxable?
Your SIP return is taxable or not, it totally depends on the type of mutual fund and scheme in which you invest and when you redeem your investment.
Generally returns from the equity mutual funds are non-taxable when redeemed after one year of the investment. If in case one redeem before one year then in that case one need to pay 15% on the profit itself.
Can One Close SIP?
Yes! SIP can be closed whenever one want too. You totally have a choice on it. This closing facility is not provided in Fixed Deposits and other policies and this is also a reason that SIP is considered best among other invest plans. One can even redeem the money or you can even keep it invested in the particular scheme.
Is SIP Eligible for Tax Saving?
Yes! If you invest in tax saving ELSS mutual fund for SIP, then you are eligible to save on taxes! Tax deduction can be claimed on this under the section 80C which can be up to 1.5 lakhs.
How to Select Best Mutual Fund Scheme for SIP?
Although SIP is best but you need to choose a mutual fund scheme which is best suited for you to start a SIP. Some does it by going through the mutual fund ratings and all. But it is a fact that you can’ rely totally on them, as you can’t afford to have a blind faith only on ratings. One need to check certain parameters such as such the expected returns, risk, average Assets Under Management and some more. Ignoring these qualitative parameters and be harmful to you. You can also take help of the professions on this but don’t trust all!
