Systematic Investment Plan (SIP) is a kind of investment scheme offered by mutual fund companies. Using SIP one can invest small amount peridically (weekly, monthly, quaterly) into a selected mutual fund. For retail investors, SIP offers a well disciplined and passive approach to investing, to create wealth in long term (using the power of compounding). Since, the amount is invested on regular intervals (usually on monthly basis), it also reduces the impact of market volatility.
As common investor doesn’t have enough time and resources, SIP proves to be a viable option for them. Listed below are the important benefits of this instrument.
Reduces Risk because of Rupee Cost Averaging
SIP can be started with very small amount of money
Timing the market is not necessary
Long term financial goal can be aligned with SIP
Disciplined approach towards Investment helps in controlling the emotions
Liquidity - You can withdraw , increase or decrease your monthly SIP amount freely. All your gains will be Tax free upto 1Lakh, if the units are redeemed after 365 days of its purchase.
Income tax benefit - Investments made in SIP schemes of ELSS Funds are eligible for deduction from taxable income under Section 80C of the Income Tax Act.
Lower lock-in period - In comparison to traditional investment avenues like PPF, NSC under section 80C of the Income tax Act, ELSS mutual funds have the shortest lock in period of 3 years.
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