Invest Rs.500 in SIP: Tax Free Investment Guide
Investing in a Systematic Investment Plan (SIP) is a smart and convenient method of entering the market. It allows you to invest a certain pre-determined amount at a regular interval (weekly, monthly, quarterly, etc.). A question often asked by potential investors is, “How can I invest Rs.500 in SIP? Will it be a tax free investment?” This article aims to answer these questions and provide a comprehensive guide to investing Rs.500 in SIP and understanding its tax implications.
How to Invest Rs.500 in SIP?
Investing in SIP is a straightforward process. Here are the steps you need to follow:
- Choose a Mutual Fund: Research and select a mutual fund that aligns with your investment goals and risk appetite.
- Decide the Investment Amount: You can start investing with as low as Rs.500 in SIP.
- Choose the Investment Frequency: Decide whether you want to invest weekly, monthly, or quarterly.
- Complete KYC: Complete your Know Your Customer (KYC) process. This involves submitting identity and address proof.
- Start Investing: Once your KYC is verified, you can start your SIP.
Is SIP a Tax-Free Investment?
The tax implications on SIP depend on the type of mutual fund you choose to invest in. Here’s a brief overview:
- Equity Mutual Funds: If you redeem your investment after one year, the gains are subject to Long Term Capital Gains (LTCG) tax of 10% on gains exceeding Rs.1 lakh in a financial year. If redeemed within one year, Short Term Capital Gains (STCG) tax of 15% is applicable.
- Debt Mutual Funds: If redeemed after three years, the gains are subject to LTCG tax of 20% after indexation. If redeemed within three years, the gains are added to your income and taxed according to your income tax slab.
Benefits of Investing Rs.500 in SIP
Investing Rs.500 in SIP can have several benefits:
- Affordability: SIP allows you to start investing with a small amount of Rs.500, making it affordable for everyone.
- Compounding: The power of compounding works best in the long term. Even a small amount invested regularly can grow to a substantial sum over time.
- Disciplined Investing: SIP instills a disciplined approach to investing by encouraging regular savings.
- Market Timing: Since SIP involves regular investments, it eliminates the need to time the market.
In conclusion, investing Rs.500 in SIP is a smart move for anyone looking to start their investment journey. While it’s not entirely tax-free, the benefits it offers make it a worthwhile investment option.
