Tuesday 27 February 2024
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What you ought to know about SIP

What you ought to know about SIP

SIP or Systematic Investment Plan is an organized way if you’re considering investing in mutual funds. It’s better for those who want to start slow and steady and earn bigger returns in 10-15 years. However, that’s only a minor detail about SIP investment; if you’re considering it as your investment option you should know everything about SIP.

As mutual funds became a popular option to invest in, SIP has become a fancy term with tons of misconceptions. What is SIP? Is it safe? Is SIP or mutual fund any different? Do I get tax benefits from the SIP? How to choose the right SIP? You’ll find the answers to all of your questions right here.

  • What is SIP?

SIP is an easy and systematic way for the investors who don’t have or don’t want to invest a huge amount. When you invest in SIP, a fixed amount of money will be debited from your bank account every month. So make sure you have enough balance in your bank account.

  • Is SIP investment safe?
  • This is one of the biggest doubts people tend to have while investing in SIP. SIP is, in fact, a safer option to invest in mutual funds. When you go for a lump sum, you might have to pay a bigger amount depending on the ups and downs in the market. Investing through lump sum also requires a thorough knowledge of the market otherwise you could end up losing big.
  • While investing in a lump sum is risky, with SIP you don’t have to worry about the market fluctuations. As you’ll only be paying a small amount every month your investment, in the long run, will be the average of low and high market prices. In that way, you don’t actually pay overruled money in SIP.
  • Are SIP and mutual funds any different?

People often get confused between mutual funds and SIP as both the terms are used interchangeably. Let’s get this clear, SIP is one of the ways to invest in mutual funds just like a lump sum. In lump sum, you invest a large amount of money at once while in SIP you put only a small amount regularly.

  • Does SIP save tax?

One of the reasons people invest is to get tax benefits. Under section 80C, if you invest in ELSS mutual fund, you can claim tax deductions up to Rs 1.5 lakh. A good online tax calculator can help you understand how much you need to invest to save tax.

Yes! Instead of saving and investing a big amount at once, you put a small amount regularly and the occasional market fluctuations won’t affect your long-term investment.

  • How to invest in the right SIP?

Depending on the risk you’re willing to take you can choose from various mutual funds including cap mutual funds and debt mutual funds.

  • High risk: small or mid-cap mutual fund plans
  • Moderate risk: low cap mutual funds
  • Low risk: debt mutual funds

SIP investment is a safe option for both the first time and experienced investors. However, before you decide to go for SIP, do your research; find out the different funds for SIP, and which is suitable for you. Before you invest, use the best MF SIP calculators to help you plan your investments.