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Key features of SIP investment

Key features of SIP investment

systematic investment plan popular as SIP is an organized investment plan that allows you to make regular mutual funds investments and save money
finance
August 13, 2021
3 min read
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Key features of SIP investment

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systematic investment plan popular as SIP is an organized investment plan that allows you to make regular mutual funds investments and save money. this is quite similar to the old technique of saving a small amount of money to buy a gift that otherwise would not; the difference here is that you get the returns over the term of investments. 

simply put, SIP is a plan where you can invest in mutual fund schemes at regular intervals and enjoy the benefit of the rupee cost averaging and compounded returns. the consistent investments made are used to purchase the mutual fund units basis the net asset value (nav) of the scheme. 

at CRED, you can seamlessly use the mutual fund SIP calculator, with which returns against an estimated annual return rate can be determined.

why make an investment in the SIP?

apart from being just an investment plan, a systematic investment plan comes with a lot more benefits. this is an investment option that works for investors of all ages who wish to save money, earn capital and further save income tax.

but before making an investment let's understand the key features of a systematic investment plan (SIP) you must be aware of before starting this investment.

secure investment

SIP is a safe investment because the money is invested in the mutual fund scheme that the investor decides. furthermore, mutual funds are a great method of starting an investing career. for those, who are unaware of the stocks and shares, mutual funds serve as good exposure to the equity market with minimal risk. 

apart from this, the money is invested regularly, making it seamless for the investor as it is directly deducted from the bank. 

systematic and organized

once you opt for sip, you can make an investment in it either weekly, monthly, or quarterly depending on the scheme. the foundation of mutual funds lies in the organized order of using money and distributing it with interest. in the sip, fixed sums of money are debited into bank accounts by investors periodically and then invested in specific mutual funds. the SIP investor is assigned a definite number of units based on the ongoing net asset value or nav. as and when money is invested, more units are added to the investor’s account.

easy SIP investment process

contrary to most investments, SIP mutual funds are much more convenient to invest owing to their seamless process. it's not only easy to apply to mutual funds, but all you need to do post applying is to enable auto-debits. the deduction is made on a monthly, weekly, or quarterly directly from the bank without any tiring manual process. 

so, with SIP you get the ease of applying and receiving the interest in a timely manner with no delays.

potential of compounding

looking for a safe yet rewarding investment option? SIP has a great potential of growing to a noteworthy amount with time even with a minimal, regular contribution owing to the compounding interest effect, compounding is a scenario where the interest earned is invested back in the mutual fund for higher returns. the compounding effect amplifies the returns and invests for a longer-term earned through sip. undoubtedly, this is of immense benefit for investors who want to earn more in the longer run.

you can understand it in detail by calculating your monthly contribution for a certain period using a SIP return calculator.

flexibility to stop at your choice

one of the major benefits of investing in SIP is that it is quite easy and convenient to stop by opting out of the SIP plan anytime. once the SIP is stopped, the investor can either return to the amount or carry on investing in the mutual fund as per their choice.

moreover, SIP provides an alternative to skip the payment in cases when an investor lacks funds during a particular month. the investment can continue with no hassles or fines in the next period.

small payments with sip 

one of the many key benefits of investing in SIP is it gives the feasibility of small denominations to investors to put it simply, SIP accepts investments in denominations of 500 ₹ and 1000 ₹ only and once the initial investment of 500 ₹ is made, investors can pay in higher denominations of 1000 ₹ from the next payment onwards.

tax saving option

sips are one of the best tax-saving instruments. one can claim up to ₹ 1.5 lakh deduction from your taxable income for investing in ELSS through SIPs under section 80(c) of the income tax act, 1961. so, the investment and savings go hand in hand. sounds great? doesn't it.

know more about your sip's amount and duration with CRED's SIP calculator and start investing to save more!

points to ponder when using SIP

  • though SIP is unquestionably a very attractive and simple means of mutual funds investments, several things need to be kept in mind to take the best possible benefit out of this.
  • timely investment is crucial in sip, investors need to make sure the monthly or quarterly investments are made promptly with no default.
  • defaulting on payments decreases the consistency that is otherwise correlated with the systematic investment plan.
  • SIP needs to be applied privately as there are various means by which financial fraud can happen online.
  • therefore, the systematic investment plan is certainly a quite manageable, handy, and useful means of making mutual funds investments online. it not only induces the discipline of saving regularly but also allows the investment to grow in the long run.

frequently asked questions

how is SIP calculated?

the formula to calculate SIP is, fv = p [ (1+i)^n-1 ] * (1+i)/i , where-

fv - future value or the amount at the maturity,

p - amount invested through sip,

i - compounded rate of return,

n - investment duration in months,

r - expected rate of return

is SIP safe?

SIP is a very safe means of investing in mutual funds as compared to other investment schemes, it provides higher returns with lower risk

can i lose money in sip?

yes, money is at risk in any type of investment yet the level of risk involved in SIP is lower in comparison to other investment options

is SIP tax-free?

each instalment into a SIP counts towards tax deductions under section 80c. one can claim up to rs 1,50,000 tax rebate, thus save up to ₹ 46,800 a year in taxes

is SIP better than FD?

no doubt, SIP is a better investment option as compared to fixed deposit as it is much more flexible, diversified with higher returns and above all comes with tax benefits.

can i stop SIP before 1 year?

yes, you can. all you need to do is select the pause SIP option and you can pause your sips for a minimum period of one month to a maximum period of six months depending on the amcs guidelines.