SIP stands for Systematic Investment Plans. It is a kind of mutual fund which allows you to invest a specific amount, that is pre-planned, on a regular basis at different intervals. It is quite a convenient and flexible form of investment wherein you don’t have to spend any extra amount than whatever is specified. Let’s have a look at a few things that you should know about SIP.
- SIP returns are taxable or not-
A majority of the investors choose SIP because it is considered a great tool to save taxes. However, it depends upon the type of your mutual fund and the period of redemption as well. If you invest in equity mutual funds, its returns have no tax on them if you redeem the investment after a year. On the other hand, debt mutual funds are taxable and the rate is 20 per cent along with indexation benefit if redeemed after 3 years of investment.
- How to choose a SIP-
The choice of investment varies and depends upon your particular requirements. You can invest in small and mid cap mutual funds if you do not mind the market risks. If you can bear risks to some extent then you should opt for large cap mutual funds. On the other hand, if you are someone who cannot handle risks or have low risk tolerance then you should go for debt mutual funds. You can also use different online calculators to determine the numbers such as SIP with annual increase calculator will help you find out the yearly increase for your investment.
- SIP is a safe tool-
SIP is a great investment tool that is very much safe as compared to other tools. When you invest in a SIP, you do not need to spend a hefty amount. You can start by investing small amounts every month. Taking into consideration the longer period of investment, the invested sum is generally the average of high and low. Thus, there is no chance of paying a high amount for mutual funds.
- What is NAV in SIP-
NAV stands for net asset value. Since the amount of investment in SIP is pre-planned, investors buy more units when the net asset value is comparatively lower and vice versa. So, if the mutual fund NAV of any scheme is Rs. 10, you will have to pay the same amount to buy a unit of the scheme.
- Save taxes-
If you invest in tax saving ELSS mutual funds via SIP, you will be able to claim tax deductions of up to Rs. 1.5 lakhs according to section 80C of the Income Tax Act. If you invest more than Rs. 1.5 lakhs, you will not get any additional tax-related benefits. This does not mean you cannot invest any further than the specified amount.
- Lock-in period-
There is no lock-in period if you decide to invest in an open-ended mutual fund through SIP. However, there are a few mutual funds that have a lock-in period too. For instance, the lock-in period for ELSS mutual funds is e years. Any mutual fund that has a lock in period is known as a close ended mutual fund.
Systematic Investment Plans are one of the most popular forms of investment. Investors seem to like it very much because of all the features that it offers. There is less risk involved in this type of investment and you don’t need to invest a big amount to get started with it. This can be the perfect way of investment if you are someone who is just starting out.