Systematic Investment Plan - Tax saving, money making and more...

This article is devoted to all the investors who want to take advantage of India growth story but refrain from doing this due to less knowledge about stock market or economy fundamentals.

I recommend them to go with Systematic Investment in ELSS or Equity focused Mutual Funds. Let me explain this in detail and why I’m so bullish on this kind of investment.

Systematic Investment Plan:

                In a simple terminology, it’s about investing specific amount of money at regular intervals for continuous period of time. I hope most of the people know about RD – Recurring Deposit, where we deposit specific amount of money to the bank/post regularly for specific time duration. Here method of investment remains same, but only investment instrument changes. In SIP, investment goes to the equity via MF scheme. Here investor can choose MF scheme based on his own risk appetite.

Benefits:

• SIP gives relief to the investors from the task of timing the stock markets. Believe me, it’s the most difficult task which even Investment Gurus are not able to do very well.
•  It makes investment as habit and not the gambling. SIP allows the investor to buy units on a given date every month/every week. The investor decides the amount and also the mutual fund scheme.
• Investment amount remains same, but investor can definitely buy more units in declining market and less number of units when market is trading at high valuation.
• Investor automatically participates in the market swings, so there’s no need to time the market.
• SIP averages the risk through consistent investment at every level of market. We don’t need to bother, if market is down or up and still we get handsome returns. This is because now we have made investment as habit.
• SIP can start with minimum investment of Rs. 500, so even small investor can participate in this investment instrument.
• Fix amount of money automatically gets deducted through ECS, every month/week. This is best way of investment when you don’t have to control when to invest or not to invest. This would make a habit of keeping some corpus aside for the SIP, every Month.
• SIP in Tax Saver MF Schemes:  I believe this is the best way to invest through SIP. Investor gets many advantages.

1). Tax Saving: Investor gets immediate tax benefit in the respective tax bracket.

2). Investment Lock in – 3 Years:  I believe investment horizon of more than 3 year enhances

3). Tax free income: All this ELSS scheme gives you tax free return.

4). Invest for 3 Year – “Forget your tax worries”: We all know when it comes to Feb, March then we’re always worried about the next pay check, which may be cut heavily due to tax liability. With the help of SIP investor just needs to invest for 3 years consistently and that’s it. At the end of third year, the same SIP amount which was invested at the beginning of SIP could be withdrawn (without any tax liability) and reinvested in the SIP again. This will manage and save your tax using the same SIP year after year once you invest for 3 consecutive years.

5). Minimum lock in Period: Tax Saver MF has the minimum lock in period, compared to other tax saving instruments. This means if you’re in 30% tax bracket, then ideally you’re making/saving 30% on the investment every 3 years. Just compare it to NSC where the lock in period is very high and at the same time you’re liable to pay tax on the gain from NSC.

I hope this article would encourage and help investors in creating wealth over the period of time using SIP.

Happy Investing !!