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SIP Essentials – 9 Must-Know Facts for Investors

SIP-essentials -9-must-know-facts-for-investors

There are a lot of false beliefs about SIP. The following inquiries are designed to satisfy your concerns regarding SIP:

What is SIP?

Systematic Investment Plan is what SIP is. SIPs are a systematic approach to making regular investments in mutual funds. We frequently lack substantial sums of money to invest. Any mutual fund that you set up a SIP with will debit a certain amount from your account each month.

You can choose which mutual fund to put this amount in. Your investments compound over time and continue to rise.

Exploring the Security of SIPs

SIP is a very secure way to make mutual fund investments.

Depending on the state of the market, investing in mutual funds all at once could result in very expensive mutual fund fees. When the markets are not overpriced, you should invest in mutual funds to avoid this.

Naturally, having solid market knowledge is necessary for this. We refer to this as timing the market.

Investing via SIP eliminates the need to worry about timing the market. You make a monthly little investment with SIP. There will be months when the price is low and months when it is high. The price you pay will be an average of high and low if you take the long view.

As a result, if you invest through SIP, you won’t pay a high or excessive fee for the mutual fund. We refer to this as rupee cost averaging.

Understanding SIP Returns: Your Money After Growth (and Taxes)

Investment TypeInvestment PeriodTax RateIndexation BenefitTax CalculationRedemption Example
Equity Mutual FundsMore than 1 yearTax-freeN/APer SIP investmentRedeem after Jan 2019 to avoid tax on Jan 2018 investment
Debt Mutual FundsLess than 1 year15%Yes (after 3 years)Per SIP investmentTax depends on your income tax slab (before 3 years)

Depending on the kind of mutual fund you choose to invest in and the timing of your redemption.

If equities mutual funds are redeemed after a year of investment, the returns are tax-free. You will be required to pay a 15% tax on your earnings if you redeem before the year is out.

Conversely, debt mutual funds have a 20% tax rate and an indexation benefit if you redeem them three years after you first invested. Your income tax slab will determine the tax if you redeem before three years have passed.

Note: Tax is computed on each individual SIP investment in the case of a SIP. This implies that a separate calculation of the tax will be made for each SIP installment.

Hitting the Pause Button: Can You Stop Your SIP?

Absolutely. An SIP can be stopped at any moment, unlike fixed deposits (FD) and recurrent deposits (RD). You have two options when terminating a SIP plan: withdraw your funds from the mutual fund or keep your investment in the fund.

SIP – Grow Your Money and Save Taxes Too!

You can also save taxes by investing in tax-saving ELSS mutual funds through SIP. Investing in ELSS mutual funds allows you to claim tax deductions under Section 80C of up to ₹1.5 lakh.

Make sure that the total of all of your SIPs throughout a financial year equals ₹1.5 lakhs in order to profit from ELSS mutual funds through SIP. If you invest over ₹1.5 lakh, you will not receive any additional tax benefits.

Nonetheless, if you think an ELSS mutual fund is a wise investment, you can still make one.

Example: 

FactorDescription
Investment Amount per SIP₹ 5,000 (Monthly)
Total Invested per Year₹ 60,000 (Monthly SIP x 12 Months)
Tax Deduction under Section 80CUp to ₹ 1,50,000
Tax Benefit (Assuming Highest Tax Bracket – 30%)₹ 18,000 (₹ 60,000 x 30%)**

Example 1: If you begin a monthly installment plan (SIP) of ₹12500 in April 2018 and continue it through March 2019, you will have invested ₹1.5 lakh for the 2018–2019 fiscal year. As a result, you qualify for a ₹1.5 lakh tax advantage for the 2018–2019 fiscal year.

Need More or Less? Adjusting Your SIP Contributions

The process to accomplish this is really difficult. However, there is a fix for this issue. With the extra money, you may easily launch a new SIP in the same fund.

As an example, let’s say you wish to raise your SIP from 10000 to 12000 each month. You can easily relaunch the same mutual fund in a SIP with a larger investment.

SIP: For Building Long-Term Wealth

Yes. Investing in SIP over the long run is actually preferable. Rather than holding out on investing until you have enough money saved, you invest the amount that you can. Your money is always invested in this manner.

Furthermore, you may guarantee that your investment is unaffected by short-term market volatility by making long-term investments.

SIP Plans to Invest In

Depending on your demands, you can invest in any SIP. You should consider investing in small and mid-cap mutual funds if you’re willing to take chances. Alternatively, you can look at large cap mutual funds if you’re comfortable with a moderate level of risk. If you want to be exposed to extremely little risk, you can also look at debt mutual funds.

For both beginner and experienced investors, starting with a SIP is a smart way to get started with mutual fund investment. Before investing, make sure you do deep research. 

Conclusion

SIPs offer a secure and convenient way to invest in mutual funds and build wealth over time. They eliminate the need for timing the market and benefit from rupee-cost averaging. Tax benefits from ELSS mutual funds through SIP are a bonus.

Don’t wait any longer to take control of your financial future. Click to Invest!

Remember, careful research is key before choosing an SIP that aligns with your risk tolerance and financial goals. By understanding the basics of SIPs, you can unlock their potential to grow your money and achieve your long-term financial aspirations.