How The Systematic Investment Plan Can Save You A Lot Of Worries

Do you remember the last time you purchased units of a mutual fund scheme to find its market price fall below your cost within weeks

? With the economic scenario looking good, the general sentiment bullish, the experts giving out buy calls, did you think, this was the big chance to enter a mutual fund scheme - an opportunity that was now or never? And then when the prices started declining and dropped down to almost miserly levels, did you wonder if there really was a method to this madness?

Well, at least, you are not the only one. This is common for people with liquid money at their disposal who look at mutual funds as lucrative modes of investment that are none too risky and at the same time yield good returns. No wonder then, that these mutual fund schemes are preferred over the stocks by the doctors, lawyers, teachers, software professionals, engineers and many other professionals operating in diverse fields. Without a doubt, mutual fund schemes are a sound investment option for the investment public who do not have the required expertise to actively trade in stocks. And one of the most effective ways to invest in a mutual fund scheme in a volatile market is through what is known as the Systematic Investment Plan (SIP) in India.

The SIP is an investment mechanism wherein the investor purchases units of a specified mutual fund scheme in installments as opposed to a lump-sum purchase. For instance, instead of purchasing the units of an HDFC Mutual Fund Scheme all at once, by paying a lump sum amount at the start, SIP makes it possible for you to break the lump sum into six equal installments and make the payment on a specified future date every month for six months. At each installment payment, the additional number of units (depending upon the market price per unit on those specified dates) would be credited to your account. This way even if the price falls down after the initial purchase, you get to buy the subsequent additional units at a lower price - an advantage you would not have got if you purchased all the units at once.

Another advantage to the Indian unitholders is from the taxation point of view. Some mutual funds listed in ELSS (Equity Linked Savings Scheme) with a lock in period of three (3) years are eligible for deduction under Section 80C of the Income Tax Act. However certain diversified equity schemes do not qualify for this deduction. The offer document of the Fund would mention if the SIP payments are deductible or not.

With the SIP all your risks in a volatile market are substantially hedged "" both ways - so drop your fears and take the plunge!

by: Paramita Banerjee

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