Investment Tips - Systematic Investment Plan

Investment Tips - Tax Benefits SIP by SIP

In these times, setting aside a large sum of money to invest in a good scheme seems like a risky proposition. To claim the maximum possible tax benefits under section 80C though, you need to invest in some scheme or else you will end up paying the national exchequer more income tax than is necessary. So how can you resolve this dilemma?

Choose to SIP your investments

SIP stands for Systematic Investment Plan. Here, instead of investing a lump sum in a fund, you break your investment into equal parts, spread out over the entire financial year. You can work out your expenses for the month and add the monthly payment without suffering a major cash outflow. You can still claim a deduction the full year (or the number of months for which you made payments that year) as your return has to be filed for the entire year. Thus, for tax deduction, you can declare the total amount you invested over the year and not just the monthly payment.

The same goes for PPF, NSC etc.

You can decide on the amount you want to set aside every year to deposit into your Public Provident Fund Account (PPF), to purchase National Savings Certificates or pay your Life Insurance Premium. Choose to break the amount into monthly payments and make sure that you do not miss any. At the end of the year when you file your tax return, you will still be able to claim the total amount for the year.

Equal monthly payments have some major benefits:

· Limits your cash outgo
· You can earmark some of the un-invested funds to meet emergencies
· Earn interest for balance months in the year, on the amount not invested
· Minimises risk when the market falls, as you block a minimal amount each month in the chosen fund
· Helps youngsters develop the habit of forced monthly savings that helps them secure their future
· In case funds you expect to receive (and then invest) are delayed, you need not postpone investing. You can go ahead and start off with a SIP where the amount will be minimal. This ensures that you do not miss the opportunity to claim deduction for any month.


Monthly payment options may not earn you high interest as the amount invested is small every month. But it certainly adheres to the age-old wisdom of not putting all your eggs in one basket and that too at the same time.