A systematic investment plan (SIP) is a method of investing money over time. You invest a certain amount each month into a mutual fund that invests in stocks, bonds, real estate, commodities, etc.
You decide how much you want to invest and the company takes care of everything else. You don’t have to worry about researching companies or choosing investments. All you need to do is set up an account and start investing!
Mutual funds are groups of securities owned by many investors who pool their money together and then use it to buy different types of assets. These funds are professionally managed by people who know how to invest money. A mutual fund manager researches potential investments and makes sure they’re profitable and safe. He or she does not make any decisions about what to invest in; instead, he or she chooses which companies to invest in based on his research.
What is SIP?
Systematic investment plan (SIP) is a method of investing money over time. In simple terms, it is a way to invest regularly over a period of time. You set aside a certain amount of money each month and invest it according to your own schedule. Your investments may vary depending on how much you have invested.
How does it work?
You start off with a small amount of money and gradually increase your investment as you go along. When you reach a certain level, you stop increasing your investment. At the end of the term, you withdraw your entire investment.
Benefits of SIP
There are many benefits of using systematic investment plans. Here are some of them:
• You get to save a lot of money if you use SIP.
• You can easily manage your finances.
• You don’t need to worry about losing money.
• You can make regular contributions without worrying about making mistakes.
• You can choose to invest in different types of assets.
• You can invest in mutual funds.
• You can even invest in gold.
Traditional systematic investment plans are retirement accounts offered by employers that allow employees to contribute pre-tax dollars each pay period. These funds are then invested according to a set plan and distributed upon retirement. TSP’s are designed to provide a steady stream of income throughout retirement.
A systematic investment plan (SIP) is an investment program offered by mutual funds wherein investors have a certain amount of money set aside over time to invest in stocks, bonds, commodities/forex, etc. Investors determine how much they want to invest and set aside regular amounts regularly. SIP is a way to save for long-term goals such as buying a house or paying off student loans. There are two types of SIPs—fixed and flexible. Fixed SIP plans offer investors a set amount of money each month to invest. Flexible SIP plans allow investors to increase their monthly contributions based on their financial situation.
Fixed SIP Plans
These plans allow investors to choose between three different contribution levels: Level 1, 2, or 3. Each level offers a different percentage of return per year, ranging from 4% to 8%. A fixed SIP plan provides a consistent amount of income throughout the year. The downside is that if you decide to stop contributing early, you’ll lose out on any returns earned after the last contribution date. If you need to make extra contributions at times outside of the annual cycle, you may opt for a variable SIP plan.
Variable SIP Plans
With a variable SIP plan, you can contribute extra money whenever you need to, as well as change your contribution schedule. You can either add additional funds to your account at the beginning of the year, or withdraw funds. Withdrawals are not allowed after 12 months; however, withdrawals before 12 months are possible. Variable SIP plans give investors flexibility to make changes to their investments without losing out on potential returns. Typically, these plans also provide higher rates of return than fixed SIPs.
Flexible SIP Plans
Flexible Sip plans offer the same benefits as fixed SIPs, but differ in that they allow for greater flexibility in terms of contribution levels. Your contribution rate can be increased or decreased depending on your financial situation. These plans allow you to choose among four different contribution levels: Level 5, 6, 7, or 8. Each level offers a slightly different rate of return, ranging from 9% to 11%. Because flexible SIP plans offer greater flexibility, they tend to be a better option for those who don’t know exactly what they’re looking for.
One of the best tax-saving tools with good investment returns is the systematic investment plan (SIP). The Income Tax Act of 1961’s Section 80(C) allows you to deduct up to Rs. 1.5 lakh from your taxable income for investing in ELSS through SIPs. You can save up to Rs. with the highest tax bracket of 30%.
Disadvantage of SIP:
In continually rising markets, SIP returns are lower.
limited SIP date options available
Delay between the actual application and SIP start/stop
People with erratic cash flow should avoid SIP.
The rewards improve if one continues to invest in the SIP for a longer period of time. SIPs should typically have a minimum investment of five years or more. According to empirical data, it takes at least five years for losses, market risks, and the effect of compounding to average out.
Mutual fund investing is so flexible that you can make monthly or one-time investments as soon as you have the cash. You can create a monthly SIP where a predetermined sum is invested on a specific date each month.Taxes are due when an investment is redeemed. When you redeem your units in mutual funds, you may be subject to short-term or long-term capital gains tax. Both SIP investments and lump sum investments are subject to these taxes.
The returns, taxes, and hazards associated with a SIP directly affect how long it lasts. Any fund’s five-year performance must be taken into account.In practice, a long-term SIP investment is preferred. You start investing with whatever you are able to save rather than waiting for money to accrue. Your money is always invested thanks to this.
|Insurer Name||Best performing Fund Name||10 year return|
|Tata AIA Life Insurance Company Ltd||Whole Life Mid Cap Equity Fund||19.58%|
|Tata AIA Life Insurance Company Ltd||Top 200 Fund||17.87%|
|Birla Sun Life Insurance Company Ltd||Multiplier||16.67%|
|Bharti AXA||Growth Opportunities Plus Fund||16.53%|
Although there is undoubtedly a danger associated with SIP, one should never forget that this is merely a method of investing and NOT the actual investment. Before making a decision, one must consider the risks of the underlying investment.