Achieve your dreams: Apply for EduFund Scholarship Program 2023 todayTax benefits on child’s education fees.
The Indian government offers tax benefits on child education fees to encourage a higher literacy rate and child education in India.
The tuition fees paid by a parent for their children are excluded from income tax and are subject to various benefits that you can avail of.
Parents can enjoy tax benefits on their child’s education fees and additional deductions that are permitted for the same under section 80C of the Income Tax Act.
Deduction for tuition payments received under section 80C
The tuition fees paid to a university, college, school, or other educational institution may be claimed by parents. Transport and development fees, among other fee components, are not deductible under Section 80C.
Together with the deduction for insurance, provident fund, pension, etc., the maximum deduction for payments made toward tuition fees can be recorded for up to Rs 1.5 lakh in a fiscal year.
Eligibility of tuition fees for Section 80C deductions
People who pay any amount or fees for their children’s education may be eligible for a tax deduction under Section 80C if they meet the requirements listed below:
- Only an individual parent, guardian, or sponsor is qualified for this deduction.
- A limit of 2 children per person is eligible for the deduction. Therefore, a maximum of 4 children’s deductions, or 2 for each parent, may be claimed.
- Every financial year, each parent may deduct up to Rs. 1.50 lakh individually. Please be aware that the parent’s total deductions under Sections 80C, 80CCC, and 80CCD cannot exceed INR 1,50,000.
- Regardless of the class the child attends, a deduction is possible. Even if it is partnered with a foreign university, the institution, college, or university must be located in India.
- Only full-time education programs that have a nursery school, creche, or play school are eligible for the deduction. As an illustration, the amount that the parent pays in April 2021 for the quarter ending in March 2021 will be eligible for a deduction in the fiscal years 2021–22.
- A parent who is divorced or unmarried may also claim tax benefits.
- School costs for an adopted child are also deductible.
Non-eligibility of payments toward tuition fees
- Payments made for development fees, charitable contributions, private coaching centers, or other expenses like mess fees, library fines, or similar payments are not eligible for the deduction.
- Paid tuition for part-time courses is not eligible for the deduction.
- The deduction cannot be used to pay for the education of yourself, your spouse, your brother or sister, your mother or father, or any other relative.
- This deduction does not apply to tuition fees paid to foreign universities that are located outside of India.
Additional School Fees Parents Must Save For
Exemption for hostel and education expenses for children
Employees in India are given the following exemptions*:
- Children’s Education Allowance: Up to two children are eligible for a monthly allowance of ₹100 each.
- Allowance for Hostel Expenditure: ₹300 per month for each child, up to a maximum of 2.
(*Only in cases when expenses are made in India following Section 10(14) of the Income Tax Act.)
The Income Tax Act of many countries offers exemptions for certain expenses related to children’s education and hostel expenditures.
These exemptions aim to alleviate the financial burden on parents while promoting education. Taxpayers can often claim deductions for tuition fees paid for up to two children, and in some cases, for hostel expenses as well.
Specific limits and eligibility criteria vary by jurisdiction. It’s crucial to understand local tax laws, keep proper documentation, and consult tax professionals to ensure you’re accurately availing of these exemptions within legal boundaries.
Deduction on Tuition Fees under Section 80C
Section 80C of the Income Tax Act in many countries provides taxpayers with the opportunity to claim deductions on specified investments and expenses, including tuition fees.
While section 80C is commonly associated with investments like Provident Fund contributions and life insurance premiums, it also includes deductions for tuition fees paid for the education of children.
Taxpayers can claim deductions for tuition fees paid to educational institutions for up to two children. The deduction is available for full-time education, including any fees paid for play school, primary school, secondary school, and higher education courses.
However, the deduction does not extend to coaching classes, development fees, donations, or other similar expenses. It’s important to note that the tuition fee deduction under section 80C is part of an overall limit, which can vary by jurisdiction.
Taxpayers need to be mindful of this limit and any other deductions they claim under section 80C. To avail of this deduction, individuals should ensure that they have proper receipts or evidence of payment from the educational institution.
This documentation is crucial in case of any scrutiny by tax authorities. While claiming deductions can help reduce taxable income and the overall tax liability, it’s recommended to thoroughly understand the provisions of section 80C and other relevant tax laws.
Consulting a tax professional or financial advisor can provide guidance tailored to individual circumstances and ensure compliance with legal requirements.
Eligibility for Tuition Fee Deduction under Section 80C:
To be eligible for the tuition fee deduction under Section 80C, taxpayers must fulfill certain criteria:
- Parent-Child Relationship: The deduction is applicable to individual taxpayers who are parents or legal guardians of the child for whom the tuition fees are being paid.
- Full-Time Education: The deduction is available for tuition fees paid for the full-time education of up to two children. This includes expenses for education from play school to higher education courses.
- Recognized Institutions: The tuition fees must be paid to a recognized educational institution, whether in India or abroad. This typically includes schools, colleges, universities, and educational boards.
- Restricted to Tuition Fees: The deduction is specifically for tuition fees and does not cover other expenses such as development fees, transport charges, or hostel fees.
- Total Deduction Limit: The tuition fee deduction falls within the overall limit of deductions allowed under section 80C, which can vary by jurisdiction.
Taxpayers should ensure that they retain proper documentation such as fee receipts, admission letters, and any other relevant proof of payment.
This documentation is essential in case of any tax assessment or audit. Before claiming the deduction, it’s advisable to understand the provisions of section 80C and consult a tax professional or financial advisor to ensure accurate compliance with tax regulations.
Non-eligibility for Tuition Fees Deduction under Section 80C:
While Section 80C offers a deduction for tuition fees, there are certain situations where taxpayers might not be eligible to claim this benefit:
- Not a Parent or Legal Guardian: Taxpayers who are not parents or legal guardians of the student for whom the tuition fees are being paid cannot claim this deduction.
- Other Expenses: The deduction is specifically meant for tuition fees and does not cover expenses like development fees, transport charges, or hostel fees.
- Not Recognized Institutions: If the tuition fees are paid to an institution that is not recognized as an educational institution by relevant authorities, the deduction may not be applicable.
- Part-Time Education: The deduction is applicable only for full-time education. Part-time courses or self-study programs are generally not covered.
- Exceeding Limit: The tuition fee deduction is part of the overall limit of deductions under section 80C. If the total of all deductions under this section exceeds the prescribed limit, the taxpayer may not be able to claim the full deduction.
It’s essential to thoroughly understand the eligibility criteria and limitations of section 80C before claiming any deductions.
Consulting a tax professional or financial advisor can provide accurate guidance based on individual circumstances and help ensure proper compliance with tax laws.
How to claim tax exemption for Children’s education allowance and tuition fee deductions?
To claim tax exemptions for Children’s Education Allowance and tuition fee deductions, follow these steps:
- Collect Documentation: Gather receipts, fee payment proofs, and any necessary documents from the educational institution for both allowances and tuition fee payments.
- Calculate Eligibility: Determine the eligible amount for Children’s Education Allowance and tuition fee deductions based on the relevant tax laws and your expenses.
- Fill in the Income Tax Return (ITR): While filing your ITR, look for sections related to these deductions. In some jurisdictions, Children’s Education Allowance might be under “Other Allowances” and tuition fee deductions under “Deductions.”
- Enter Details: Provide accurate details of the expenses, allowances, and deductions as required in the ITR form. Double-check the information to ensure accuracy.
- Attach Documents: Attach supporting documents like fee receipts and proofs along with your ITR filing. Many jurisdictions allow for electronic submission of documents.
- Review and Submit: Review your ITR form to make sure all information is correct. Submit the ITR with the attached documents through the designated online portal or via your tax consultant.
- Keep Records: Maintain copies of all submitted documents and ITR for future reference in case of any audit or inquiries.
Remember, tax laws and procedures can vary by jurisdiction. It’s advisable to consult a tax professional or refer to the official tax authority website for specific guidelines and regulations relevant to your region.
How to claim the tax benefits on your child’s education fees?
Parents can submit the school’s receipt for the fee paid throughout the fiscal year to their employer. Before filing the investment proofs at the close of the financial year, parents must additionally demonstrate it in form 12BB.
You must prove the number of fees paid under section 80C on the income tax return to claim the deduction for a person who is not a salaried employee under the VI-A schedule.
The children’s education allowance, which is a part of the wage structure, and the fees paid for the children’s tuition are both separate deductions, it is vital to note this.
As a result, these may be claimed individually up to the permitted maximum (given above) by the rules of the Indian Income Tax Act, 1961.
You should utilize these tax benefits to reduce the cost of your children’s education and lower your overall tax burden.
By taking advantage of these exemptions, you can lower your tax liability and use the money you save to invest further and create a fund for your children’s higher education.
Therefore, as a way of increasing literacy rate and awareness, the Indian government has provided an opportunity for everyone to educate our children by exempting parents from paying taxes when it comes to our children’s tuition fees, but of course, it has its limitations.
This is an attempt at national development and for us to reach new successes and explore what we can do with education.
FAQs
Can an unmarried person claim a deduction u/s 80C of the Income Tax Act, 1961 for school fees paid for 2 children?
Yes, taxpayers can enjoy tax benefits on their child’s education fees and additional deductions that are permitted for the same under section 80C of the Income Tax Act.
Is school fees eligible for an 80C deduction?
Yes, school fees are eligible for tax benefits under Section 80C deduction. The amount of tax benefit is within the overall limit of the section of Rs 1.5 lakh a year.
Can we get tax exemption on school fees?
Yes, school fees are eligible for tax exemption under Section 80C deduction. The amount of tax benefit is within the overall limit of the section of Rs 1.5 lakh a year.
How much I can claim for tuition fees?
The amount of tax benefit is within the overall limit of the section of Rs 1.5 lakh a year.
How do I fill my tuition fee in ITR?
Salaried employees need Form 12BB to claim tax deductions for tuition expenses along with the necessary documents in support of the declaration. Self-employed or non-salaried professionals can claim tax benefits under Section 6 of the Income Tax Return (ITR) form.
Can I claim a deduction u/s 80C of the Income Tax Act, 1961 for my adopted child’s school fees?
Yes, it is possible to claim a deduction for adopted kids as well under Section 80c of the Income Tax Act.
Can I claim a deduction under section 80C for tuition fees paid to an Indian institution for my wife’s education?
No, you cannot claim a school fees deduction for your spouse under section 80c of the Income Tax Act.
I and my wife both paid for the education of our one child. My wife paid 70,000 and I paid 1,10,000/- can we both claim a deduction?
Yes, both parents can claim a deduction on your income tax return for the amount you paid.
I am a working woman and I am paying the education fees for my husband’s education. Can I claim the deduction for this?
No, it is not possible to claim a deduction for your husband’s education fees under section 80c.
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It sets long-term and short-term goals for parents and children to save up time and help them achieve their goals. EduFund also helps you with education loans and connects you with the best loan partners in India and USA. How can you set up an account with EduFund? You can download the App from Play Store or apple store and set up your account free of cost. All you need is a bank account, an Aadhar, and a pan card to open your account and start investing in mutual funds. Conclusion We live in a world that is marred with competition, whether it's getting into a good college, or choosing the right investment instrument, being prepared for the future equips you to handle things better. The stability of having a corpus and not being dependent on an education loan is a reassuring move for your child to choose his/ her dream college. An EduFund may seem a far-off thing today, but it is a necessity for the future. Plan, invest, and educate!
4 W’s of Balanced Advantage Funds
What is a Balanced Advantage Fund? A balanced advantage fund is a fund that can invest 0-100% in the equity market or 0-100% in the debt market dynamically as per the prevailing market condition. For example - If a fund manager finds that the price of the equity market has gone up, he will tilt the portfolio more toward the debt market. Likewise, if the equity market trades at a discount, then the fund manager can tilt/shift the portfolio toward the equity market. The valuation is the internal process of the fund. Based on valuation, the fund manager can take the call. This way, the fund manager can take the opportunity and change the asset allocation. The fund manager can go aggressive in the equity market or can also decide to play conservatively to reduce the portfolio's volatility. The aim is to minimize the portfolio's downside risk and maximize the returns. Who should invest? Investors who are looking for long-term wealth creation. Investors who are not comfortable with the market volatility. Investors who do not want to face high volatility and looking for equity-like returns. Investors who are unsure which type of fund they should invest in, whether in the equity or debt-oriented fund. Risk-averse equity investors with an investment horizon of more than three years. Additional read: Financial mistakes to avoid Why should you invest? A balanced advantage fund is a dynamically rebalancing fund between two asset classes, i.e. equity and debt. It has the complete flexibility of rebalancing from 0-100% in both asset classes. It provides you with better risk-adjusted returns. It manages the equity market volatility and provides stability in the portfolio by diversifying the portfolio into the debt market. It offers you equity-like returns, which help your portfolio to grow at a much faster rate than debt funds and also helps you to beat inflation. Minimizes the downside risk and provides scope for growth by investing in the equity market. When should you invest? When the volatility in the equity market increases you do not want to have such high exposure to the prevailing volatility. When you want equity-like returns but do not want to face high liquidity. First-time mutual fund investor looking for long-term wealth creation. Conclusion Try to allocate some portion of your portfolio towards a balanced advantage fund if you want to reduce the portfolio's volatility. A balanced advantage fund is like a season fund. TALK TO AN EXPERT
5 financial things to consider before child planning.
Both life and wallet will never be the same once you decide to have a baby. No event in your life will signify financial change quite the way this one does, from the first prenatal appointment to the day of college graduation (and beyond). 5 financial things to consider before child planning 1. Create a budget Before you start child planning, you need to have a budget in place. You and your partner may need to create a realistic budget based on your expenses and your streams of income. Once you know how much you can afford to spend, you will be able to tackle the costs easily. A new child is a new family member that needs space! So if you need extra space once the baby is born, figure out what kind of home you can afford, whether it's a slightly larger apartment, a warm cottage, or a pricey house. Will you want the latest baby things or your sister’s passed-on ones? Think about what sort of child care would you require and get candid with your expenses before you start making any purchases. Money Management Tips for Homemakers Read More 2. Costs associated with birth As new parents, you need prenatal vitamins, alternative therapies, labor and delivery alternatives, and screening tests. Give yourself enough time to change or upgrade insurance plans should you need more comprehensive coverage. Good health insurance is vital in this economy. Hospital bills, medical fees, and maternity costs can be high. According to estimates from the industry, a straightforward delivery could cost between Rs 50,000 and Rs 70,000, but a private specialty hospital could charge up to Rs 2-3 lakh. A cesarean delivery could result in a cost rise of up to Rs 4-5 lakh. Before having a kid, you should make financial arrangements for the costs associated with the delivery and child care. 3. Consider maternity leave The vast majority of Indian employees are not entitled to paid family leave. If the mother is employed, you might need to think about taking a lengthier (unpaid) maternity leave or a sabbatical for a year or two. This can be a huge financial loss for families that rely on both streams of income. Paid parental leave is not always an option. Find out if your workplace offers paid leave for new parents and if there are any policies in your favor that you can utilize. Determine the number of weeks covered and the proportion of your salary that is used. Do you have to use your sick and vacation days first? If you don't have access to paid time off or you're going to take more unpaid time off, you might want to cut costs or rely on your savings. 4. Purchase life and health insurance You'll want your child to be stable financially if something were to happen to you or your partner. A life insurance policy can assist in paying for things like child care, housekeeping, cooking, and more. Purchasing maternity insurance is the first action you can take to cover maternity costs. When purchasing health insurance, (even for a couple), it is important to confirm that the policy includes coverage for maternity costs and, if applicable, any applicable waiting periods. Additionally, by paying a larger rate, you might add pregnancy coverage to a current insurance policy. Buying health insurance is most important when considering having a child. Get your health covered in your plan so that you are not financially burdened in case of a health emergency. 5. Plan for the child’s education Just like the prices of lemons and oranges are growing, the cost of education is skyrocketing. Saving for your child’s college is a necessity. When it comes to saving money for college, time and compound interest are your best friends. Even while inflation is an unavoidable fact, keep in mind that education inflation is far higher. Utilizing the force of compounding is one approach to combat this, but it will only be effective if you have a long-term strategy in place. You indeed have no idea what career path your child will take, but you still need to put aside a portion of capital that can be utilized when the time comes. Right now, you need to think about the type of education you would like to offer because the practical costs of studying engineering in India vs. the US would be very different. From giving birth to seeing them off to college, watching your child grow and thrive is every parent’s dream! So give those dreams wings by planning ahead and investing for their bright future! TALK TO AN EXPERT
5 investment plans every parent should have
As parents, we have a profound responsibility to ensure a bright and secure future for our children. While providing love, care, and education are crucial aspects, financial planning plays a pivotal role in setting the stage for their success. Investing wisely is key to securing their future aspirations and safeguarding against unforeseen circumstances. Let's explore five essential investment plans that every parent should consider, ranging from mutual funds and US ETFs to US stocks and insurance. So, we will dive in and discover the strategies that can pave the way for your child's financial well-being. Education Fund: The Power of Mutual Funds One of the most crucial investments you can make as a parent is in your children's education. Start by setting up an education fund that specifically caters to their academic pursuits. Consider tax-efficient options like a 529 plan, which allows you to invest in a variety of mutual funds, ensuring growth potential while enjoying tax benefits. Platforms like EduFund (www.edufund.in) offer valuable guidance and tools to help you plan and manage your child's education fund effectively. investment plans US ETFs: Diversification Made Easy 1. Exchange Traded Funds Exchange-Traded Funds (ETFs) have gained significant popularity in recent years due to their flexibility and global exposure. Just like mutual funds, ETFs represent a basket of securities, including stocks, bonds, commodities, or a combination thereof. However, unlike mutual funds, ETFs are traded on stock exchanges throughout the trading day at market prices. ETFs offer several benefits, including transparency, liquidity, and cost-effectiveness. Parents can buy and sell ETFs at any time during market hours, allowing for more flexibility in managing their investments. Additionally, ETFs disclose their holdings daily, ensuring transparency in the investment portfolio. With generally lower expense ratios compared to mutual funds, ETFs offer a cost-effective investment option for parents. 2. USA Stocks For parents who are comfortable with taking on more active roles in their investment journey, investing in individual stocks can be an exciting avenue. Owning shares of well-established companies can offer substantial returns over time. While investing in individual stocks requires careful research and monitoring, it can provide the potential for higher growth compared to mutual funds or ETFs. EduFund's resources can assist you in understanding stock investing basics and identifying companies with strong fundamentals. To mitigate risk, parents can consider diversifying their stock portfolios across different sectors and industries. This diversification helps reduce the impact of a single stock's performance on the overall portfolio. In addition, parents should adopt a long-term investment mindset and focus on the fundamentals of the companies they invest in rather than short-term market fluctuations. Investment Tips for Dad's in India Read More Insurance - Protecting Your Family's Future Insurance is a pivotal component of any comprehensive financial plan, especially for parents. Life insurance provides financial protection to your family in the event of your untimely demise. It ensures that your children's education, living expenses, and future aspirations are secure, even in your absence. Term life insurance offers coverage for a specified period, providing a higher coverage amount at an affordable premium. Additionally, health insurance safeguards against unexpected medical expenses, offering peace of mind during uncertain times. By securing adequate insurance coverage, parents can safeguard their family's financial well-being and ensure a secure future. Investment Tips for Mom's in India Read More Mutual Funds - Diversify and Grow Your Wealth Mutual funds are an excellent choice for parents seeking diversification in their investment portfolios. These funds pool money from several investors to invest in a variety of asset classes, including stocks, bonds, and money market instruments. Managed by professional fund managers, mutual funds allow parents to benefit from their expertise and experience in making investment decisions. By spreading investments across different sectors and markets, mutual funds help reduce the risk associated with investing in individual stocks. Parents can choose from many types of mutual funds on the basis of their risk appetite and financial goals. For those seeking stability, bond funds can offer a regular income with lower volatility. On the other hand, equity funds offer an opportunity for capital appreciation through investments in stocks. Balanced funds offer a blend of both equity and bond investments, providing a balanced risk-return profile. By investing in mutual funds, parents can access professional investment management and enjoy the benefits of diversification. You can lay a strong foundation for your family's future by incorporating these investment plans into your financial strategy. Remember that investment decisions should align with your risk tolerance, financial goals, and time horizon. It's always suggested as advice to seek guidance from financial advisors who can provide personalized advice based on your specific circumstances. Conclusion Investing wisely is an integral part of parental responsibility. By incorporating these five investment plans into your financial strategy, you can take proactive steps toward securing your child's future while also protecting your own financial well-being. Remember to conduct thorough research, seek professional advice, and regularly review your investment portfolio to adapt to changing circumstances. By combining long-term vision with disciplined investment practices, you can build a strong financial foundation for your children, allowing them to chase their dreams with confidence. Start planning today and pave the way for a prosperous future for your family. Consult an Expert Advisor
5 Reasons why Global Education is the Best for Indian Students
It is universally acknowledged that education is a very powerful weapon. Education can transform an individual and colleges can broaden a child’s horizon. Every child deserves to receive a quality education. There are various reasons why global education is the best for Indian students. From our experiences, we know that when a student receives a world-class education, it helps them become their best version – professionally and personally. Pursuing higher education outside of India seems to be promising in more ways than one. In this blog, we will talk about how studying abroad can affect your life for the better. Let's get started. 5 Reasons why Global Education is the best for Indian Students When you think about it, there are innumerable ways in which a global education can benefit an Indian student. In this article, we will talk about the 5 major ones. Let's get started. 1. Changes Your Life, for Good! International exposure to study at a foreign university and the experience of living in a new country can be life-changing! The combined power of both results in gaining practical knowledge that can help you in life immensely. Living alone in a foreign country can be daunting in the beginning, but it teaches you an immense number of values, and ethics, and not to mention, you become a pro chef! You learn what is not written in the textbooks. Such experiences also shape your personality and groom you as a responsible professional. 2. Holistic And not just Academic Development The Indian education system offers academic rigor. However, there still is room for improvement and development. The cut-offs in premier Indian colleges soar to touch the sky. But whether these colleges provide excellent holistic development is still a big question mark. Regardless of the foreign country you prefer to study in, most global universities focus on not just academics, but also professional qualifications, leadership, and personal development. Foreign programs have gained popularity because the faculty is invested in a student's all-around growth. 3. Opens closed doors Whether it is studying for a master's abroad or a Ph.D. – Foreign universities offer what you commonly don’t find in India. An array of courses across all fields and subjects like - Artificial Intelligence and Data Security or Criminology, and Media Relations. You name it and they have it. As per reports released by the USIEF, in 2019, Indians studying in the U.S. made up 17% of the international student population there. If you want to take the road less traveled or pursue a career in a highly specialized niche, global education opens closed doors. 4. Brighter Career Prospects Indian students who have received good foreign education have an edge over others. You wonder why? Recruiters view international experience as an asset. It is reflective of many things like your skills to compete in a global setting and your ability to adapt to diverse cultures. Global education helps you hone your skills and grow exponentially. After completing their degree, outstanding students can bag an international job as well. 5. Diversity They appreciate unique students. Many top-notch B-schools and other universities seek to promote diversity and inclusion. This means that the admissions team deliberately tries to encourage people from different walks of life to join the classroom. Highly reputed universities welcome meritorious international students. Some even try to strike a balance in their gender ratio thereby including talented girls and giving them an equal chance to fly. As the saying goes- "Sometimes the smallest step in the right direction ends up being the biggest step of your life!" Take the first step towards a brighter future. And, live the life of your dreams! FAQs Why is global learning important for students? International exposure gained while studying at a foreign university and the experience of living in a new country can be life-changing! The combined power of both results in gaining practical knowledge that can help you immensely in life. What is the value of global learning? Indian students who have received good foreign education have the edge over others. You wonder why? Recruiters view the international experience as an asset. It is reflective of many things like your skills to compete in a global setting and your ability to adapt to diverse cultures. International education helps you hone your skills and grow exponentially. Why foreign education is better than Indian education? They appreciate unique students. Many top-notch B-schools and other universities seek to promote diversity and inclusion. This means that the admissions team deliberately encourages people from different walks of life to join the classroom. Highly reputed universities welcome deserving international students. Why do Indians prefer foreign education? Indian students prefer foreign education because of many factors. Studying at an international university will give students great exposure in terms of meeting people from different cultures and countries. It will also create excellent employment opportunities abroad. Having studied at a foreign university will add value to a student’s resume. Conclusion These are some of the major reasons why global education molds an individual for the better. In reality, there are many more points that one can consider. Whether it is the quality of education- or the experiences one attains, education abroad is a stepping stone toward untapped opportunities. We know many of us are now thinking, "What about the funds required to study abroad?". Well, saving up for higher education is not as hard as you think.
5 reasons why SIP is the best investment choice?
A systematic investment plan or SIP is the best plan that helps you invest in mutual funds on a regular basis. You can choose to invest weekly, monthly or even quarterly – the most popular choice being monthly. There are multiple reasons why SIPs are the best way to grow your money especially when you have a goal to plan – e.g. your child’s education. SIPs can be bought easily and you can start with a very low amount - Rs. 500 per month. In this blog, we will talk about the ‘Big 5 advantages’ that SIPs offer to you as a parent. But before that, let's understand what a SIP is What is SIP? A SIP or systematic investment plan is an investment mode through which an investor can create a regular mechanism of investment for themselves. Let's take the example of investor X. Investor X wishes to invest Rs. 10,000 every month in a mutual fund. In this case, investor X can create a SIP for a fund they want to invest in and the money will be deducted every month automatically (the deduction can be weekly, monthly, or even quarterly, depending on the investor's choice). Think of it as a recurring deposit, with better returns. Now that we know what a SIP is, let's get to know why investing via SIP is the best choice you can make to enlarge your corpus. CALCULATE MONTHLY SIP 5 Reasons SIP is the best These are the 5 main reasons why you should invest via a systematic investment plan to reach your financial goals 1. Suitable for Long-Term Investment Any financial advisor will tell you that if you want to invest long-term, SIP is the way to go. The reason is simple, regular investing and automatic deductions keep investors motivated to stay invested and reach their investment goals quicker. During the 2008 financial recession, many people withdrew money from mutual funds. However, the ones that remained invested via SIP, attained a huge profit once the markets rose. Long-term investing makes sure that even if the market is down at the moment, once the markets rise, the investor will make profits. 2. Goal-planning SIPs are good tools to plan for a future goal – to buy a 4-wheeler or to pay for college tuition fees maybe 10-15 years from now. When you determine the amount required to achieve your goal, you will know how much you should invest and how long it will take to reach your goal. This will help in planning effectively. Having financial goals is very important to creating a financially secure future. One must have a defined idea about what financial goal one wants to reach by the age of 30, 40, 50, and so on. 3. Effect of Compounding Compounding is one of the biggest advantages of a SIP. Over time your investments grow because you start earning returns not on your principal amount, but on the interest that keeps getting added to it. Let's take an example. Suppose you invest Rs.1,000 in a mutual fund that gives you a yearly return of 10% p.a. Your amount becomes 1,100. at the end of the first year. At the end of the second year, the rate of return is 11%, this time the returns will be calculated on Rs. 1,100 and not the principal amount, which is, Rs. 1,000. This ensures the growth of your corpus and is one of the reasons why experts advise you to not withdraw your investments when the market is down. 4. Curated by Experts With the increasing number of fund types like equity, debt, mixed, gold-based, etc. there is a wide variety to choose from based on your risk appetite and preferred investment duration. This has led to customized offerings based on individual needs, supervised by experts in the SIP domain. All you need is to specify your goal and timeline and you are provided with the best possible funds that can meet your future goals. SIPs have become popular over the past few years, because of the ease of investing and the flexibility provided in terms of the amount of money that can be invested. You can stay invested as long as you want, although average returns have been higher when invested in the long term. Research also shows that the returns offered by SIPs are more than recurring deposits in banks, in the long term. 5. Automates Your Investment Experience SIPs automate your investment experience, which makes you a regular investor. It is easy and convenient and because of the online surge, today, it is super easy to invest via SIP. If you choose the lump sum method, you will have to manually invest an amount and there may be times when you can miss an installment. With automated installments and a streamlined process, investing via SIP has now become an extremely popular method, to reach long-term goals like saving up for your child's education. FAQs Why is SIP investment good? By investing through SIPs, you will do away with the burden of timing the market as you could then avail the benefit of Rupee Cost Averaging. By investing through SIP, you will tend to invest in the up and down markets. This helps you shy away from the volatility of the market. Additionally, you will benefit from the power of compounding, which fundamentally generates returns not only on capital but also on returns. Is SIP good for students? Investing in SIP can be a huge benefit for students. It cultivates a healthy investment habit, and they can invest a small amount to start their journey. SIP is best for beginners and a comparatively safe investment vehicle. What are the features of SIP? A SIP offers the following features: It is best for long-term investment, brings financial discipline, allows small investment amounts, benefits from the power of compounding, and is a comparatively safer investment tool. Why do people prefer SIP? A systematic investment plan helps bring discipline to an individual’s investment habits. A SIP will automatically deduct a pre-decided amount periodically. Investors also do not need to worry about timing the market while investing via SIP. It is one of the best investment vehicles for beginners. Consult an expert advisor to get the right plan TALK TO AN EXPERT
