What is Systematic Investment Plan (SIP) & its Benefits?

What is Systematic Investment Plan (SIP)?

Systematic Investment Plan (SIP) is a method to invest in mutual fund. It is not the type of mutual fund scheme. It is a method of investing a fixed sum in a mutual fund scheme regularly, means weekly, monthly, quarterly etc.

Benefits of SIP

  • The biggest advantage of SIP is that one need not require to time the market.
  • Investor can invest the fixed amount depending on his convenience through post dated cheques or through auto debit facility.
  • Units are bought at different rates and investors benefit from Rupee-cost averaging and the power of compounding. Rupee cost averaging gives benefit from volatility whereas power of compounding means small investment create big kitty over time.
  • Flexibility: Investor can discontinue the plan at any time. One can also increase/decrease the amount being invested.
  • Tax benefit

All types of equity funds, debt funds and balanced funds offer a Systematic Investment Plan (SIP).If you are invested in SIP , you are not liable to pay any taxes for all your investments held for more than one year as long term capital gains from equity are tax free. You will require to pay short term capital gains tax on all those SIP investments which had not complete one year till the time of redemption.