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How does a SIP work?

What is SIP?

SIP or Systematic Investment Plan is a plan through which a person can invest a small amount in a mutual fund at regular intervals say once a month or once a quarter, instead of making a lump-sum investment. 

Invest Small Amount

SIPs can be started with a minimum of ₹500 each month. you can choose the frequency as monthly or quarterly for investing according to your choice.

Averages the purchase cost

SIP make sure that you invest a fixed amount regularly over a period irrespective of the market conditions. you would get more units when the market falls and less units when the market rises .

This averages the purchase cost of your mutual fund units and places the investment in the position to earn good return.  

The compounding factor

The earlier you start investing, the more wealth you are able to create for yourself -and this is  exactly what the power of compounding does for you. 

Whatever sum of money you invest, you will earn interest on it. and, this interest also gets invested to earn interest. Thus, it helps in creating a substantial amount of wealth in the long run.

Achieve your goals

SIP helps to achieve your long-term financial goals as your investments are broken down into smaller, regular investments. Investing a small amount regularly helps you to achieve your long term goal.

Discipline yourself financially

SIP imparts discipline in the investment process, making you invest a fixed amount at regular intervals. By starting early, even with a small amount, you can build a big corpus over a period of time to achieve your financial goals.

How does a SIP work?

  • Every month a fixed amount is deducted from the investor’s bank account and invested in the mutual fund scheme, chosen by the investor at the time of starting a SIP.
  • Every time the amount is invested in the mutual fund scheme, units are allotted to the investor.
  • Since investments are broken down into smaller, regular investments, your investments average out the market ups and downs and results in averaging your cost and maximizing your return.
  • Investor can redeem (withdraw) units or switch to another schemes, whenever he wishes to do so. Investor should check the scheme related document as some mutual funds have a specified lock-in-period.

Things to check before investing in Mutual Funds

Important things to check before investing in Mutual Funds

Mutual funds have emerged as one of the best ways to build a corpus in the long term. In this article we will talk about the important parameters to be checked before investing in Mutual Funds.

Investment Objective and Risk Tolerance

Before investing one should first identify his investment objective and risk tolerance i.e the risk you are willing to take. If you aim to earn capital gains for more than a year, choose a long-term mutual fund scheme wherein your money gets pooled in for a period of at least 12 months in case of equity or a balanced mutual fund and for at least 36 months in case of a debt mutual fund. However, if your investment objective is to earn current income, you should go for short-term mutual fund schemes.
Similarly, if your risk tolerance is high, go for equity mutual funds, otherwise, choose a debt or a balanced mutual fund scheme which tries to offset the involved risk by investing in both equity and debt instruments. A scheme which is aligned with your objectives and is in line with your risk profile is the scheme which you must opt for.

Check the investment allocation

While investing in Mutual fund one should check the asset allocation i.e where the money is actually being invested in? Is only debt or equity+debt or only equity? And in that too in which bifurcation. And based on his risk taking ability he should accordingly choose the mutual fund scheme. Eg; Equity is considered risky in comparison to debt, therefore the return potential of equity is also much higher in equity as compared to debt. The choice of asset is very important and it should be in line with investment objectives.

Background check about the Fund Manager

A check over the experience of the fund manager may ensure that you have given your hard-earned money in deserving hands. A fund manager with expertise in finance and ethical history will be an ideal candidate to go with.

Compare the fund with its Peer Group

Just knowing a mutual fund scheme’s own performance is not enough. It is also important to check how it has performed among its peers and benchmark. Remember this comparison should only be among the same type of mutual fund schemes means comparing apples to apples. For instance, a large-cap mutual fund scheme should not be compared against a small-cap mutual fund scheme. Try to select a fund that consistently outperforms its benchmark and has maintained its performance during market downturns.

Checking Mutual Fund’s Performance Consistency

Another important thing to check before investing in mutual funds is the scheme’s performance over the long term. Instead of checking how much returns the scheme has generated in recent times, make your investment decision considering how it has performed over the past 1, 3 or 5 years. It tells you if it is capable of giving you consistent or stable returns.

Mutual Fund expense ratio and load

While selecting the scheme one should also check the scheme expense ratio and the exit load. Exit load is a fee or an amount charged from an investor when he decides to redeem units of his mutual fund or leaving a scheme. Lower the expense ratio better is the scheme.

Taxation of Mutual Fund

Investor receives two types of income from Mutual fund investment namely capital appreciation and dividend depending on the type of scheme chosen. It is important to inquire about the tax liability arising from a particular scheme, before you plan to invest your money in it.

Power of compounding: Reason to invest

Everyone talks about the investment, why we should invest is still not clear to most of them.

So, what is compounding?

Compounding is the method of earning income from your previous earnings by reinvesting them. Lets understand this with a simple example:

Let us assume that someone invested Rs 1000 per month for 20 years and if the expected rate of return is 10% per year. The interest for the first year would be Rs 565. In compounding, First year’s interest is added to the principal in the second year and so on. So, Second Year Principal will be =(12000+565)=12565 and interest will be Rs 1881.

For more detailed table and graphs, refer to Poonje’s SAVING CALCULATOR

After 20 years, total amount invested will be Rs 240,000.00 and total interest earned will be Rs 519,368.00. If you look closely total interest earned is more than 2 times the amount invested. So, let me simply say this, put your money to work and let it earn more money for you.

Thus, we see that as the time goes, earnings do not multiplies but grows exponentially.

How to make best use of compounding (make your hard earn money to earn more money for you)

Start early

As seen in the above example, you were able to grow an investment of Rs 1000/- per month to nearly Rs 759,368 (invested amount Rs 240,000 and total interest earned Rs 519,368) in 20 years.

However, if you extended the investment horizon by another 5 years, you have earned much more Rs 1,326,833 (invested amount Rs 300,000 and total interest earned Rs 1,026,833).

Thus, the longer you hold more you gain from compounding effect. This is one of the primary reasons to start investing early.

Think before invest

Before investing, think about your investment objective, time period & your risk tolerance. After that choose the investment products that give you a higher rate of interest and meets your objective. Example investing in Fixed Deposit have low interest rate but little to no risk than Mutual funds. Investing in Equities has high return and high risk.

Invest regularly in order to grow your investment

By regularly increasing your investment amount, you can make a huge difference over the long term. Even regular investment helps you, budget your day to day life & restricts you from overspending.

The best way of making your money grow, is to stay diversified and keep investing steadily. If you invest a set amount regularly, you will automatically take advantage of volatility in the market and can grow your investment. Thus, the slow and steady approach tends to yield more growth and less stress.

5 Reasons: why Retirement Planning is Important

Retirement should be the best time of your life, when you can relax and enjoy your life with your loved one. This is the stage when your body becomes tired and want relaxation, So, If you wish to be financially independent and achieve a worry-free retired life, you should plan ahead for your future.

(Use our Retirement calculator to calculate how much to save for your retirement.)


Inflation is a one of the primary reason, one must take into account while planning for his retirement. As we all know that the purchasing power of money falls with time, which means we need to spend more in future for purchasing the same good & services. Thus, calculating your retirement funds as well as your expenses become essential.

Medical emergencies

With increasing age, health problems increases, as our body becomes weak. Medical expenses may make a huge dent in your income after retirement. So, if you have sufficient retirement fund to cater to any unforeseen healthcare expenses, you won’t feel to be a burden on your future generation.

Financial Freedom & Security

Investing early shall not only help you gather more funds in the future, but will also help you to achieve financial independence in retirement years.

Post retirement, your invested amount, savings and your returns on investment will help you to plan for bright & secure future.

Getting stuck in the savings mindset

People tend to get hung up on how to save every month. The amount does not matter, even a small amount starting at an early age, can help you save a huge money for your retirement. Thus the later you start, the more and the longer you will have to save and invest to reach a particular retirement amount.

Nuclear Families a trend

Nuclear family is a trend this time. In Indian societies we found it difficult for senior citizens to move themselves from their hometown and stay with their children. In some situations children are not willing to live with their parents. Thus, it is better to make investment decisions during your working life and put your hard-earned money to work for you in future. If you can manage your finances well and could gather sufficient retirement savings, you can live an independent life of your choice.

Understanding Form 16

Form 16 is an Income Tax form issued by the company to its salaried employees in India. It is the detailed record of the salary components and income tax  deducted from the salary of the employee by the employer, during the financial year. It is mandatory for employers to issue Form 16 if he deducts TDS on salary of its employees.

Form 16 consist of two parts Part A & Part B:

Part A of Form 16

Part A contains the name & address of employer & employee with their Pan NumberTAN number (tax deduction & collection account number) of employer who is deducting the tax. Every employer who is deducting tax or collect tax on behalf of Income Tax Department is required to obtain TAN number.

It also contains Assessment year and the period the employee spent with the employer during the Financial Year.

Assessment Year is the year in which you file your return on your income for a given financial year, means if we are filing tax today on 14.07.2018 than the assessment year (A.Y) will be 2018-19 and the financial year in which you earned the income F.Y will be 2017-18. Similarly, if we are filing tax on 14.07.2016 than A.Y will be 2016-17 and F.Y will be 2015-16 (previous year).

Part A also contains the quarter wise details of tax deducted and  deposited to the government by the employer, on behalf of their employees as shown below:

Part B of Form 16

Part B consists of consolidated detail of your salary during the year. It includes breakup of your salary as well as deduction claimed by you under section 80 of the income tax act. It also shows your total taxable income and tax deducted on that income.

  1. Gross Salary: It is your annual salary without any deductions plus any prerequisites that you receive for example (bonus, incentives etc.)

Profit in Lieu of Salary: In lieu of means “instead of “profit in lieu of salary means any payments received by an employee from his employer in addition to salary or wages.  It is taxable under the income tax act. This type of payment includes gratuity, commuted value of the pension, retrenchment benefit, interest received from provident fund or payment received by the employee before joining or after the termination of employment.

  1. Allowances to the extent exempt u/s 10

There are various allowances that are exempt from income tax as per section 10 for a salaried employee such as House Rent allowance, leave travel allowance, travelling allowance, academic allowance, children education allowance etc.

  1. Balance – Balance in Form 16 indicate Gross Salary minus Allowances to the extent u/s 10

4. Deduction:

  • Entertainment allowance- It includes the amount of money given by the employer to their employees for meal, hotel, drink etc.
  • Tax on Employment- Tax on employment or Professional tax is a tax levied by a state government. This tax is usually deducted by the employer and deposited with the state government. In income tax return, professional tax is allowed as a deduction from your salary income.

5. Aggregate of 4(a) and (b)– Is the sum total of Entertainment allowance & Tax on Employment as explained above.

6. Income chargeable under the head Salary – It provides details of the deduction allowed for Entertainment Allowance, Profession Tax or tax on Employment. It is calculated by deducting Balance obtained in point 3 minus aggregate of 4(a) and 4(b).

7. Details of any other income: Income from Other Sources covers income that does not fall under any of the other heads of income means incomes excluded from salary, capital gains, house property or business & profession comes under this head e.g. dividend income, income earned from winning lotteries etc.

8. Gross Total Income: Gross total income is the sum of Income chargeable under the head salary (point 6) and any other income (point 7).

9. Deductions under Chapter VI-A(80C, 80CCC, 80CCD)

Section 80C: Under section 80C, a deduction of Rs 1, 50,000 can be claimed from your total income, if you have make payment towards life insurance, provident fund set up by government, national saving certificate, tuition fee etc. For full list please refer to section 80c of income tax act.

For full list please refer to section 80c of income tax act.

Section 80CCC: It includes a deduction for premium paid towards annuity plan of LIC or any other issuer for receiving pension from the fund. The deduction is available up to Rs 1, 50,000/-

Section 80CCD (1):  It provides a deduction for individuals, who make deposits to his/her pension account. The Maximum deduction allowed is 10% of salary in case of employees and 10% of total income in case of others, up to  Rs 1,50,000/-

Section 80CCD (1B):  It provides a deduction up to Rs 50,000/- for contribution to the National Pension Scheme. This deduction is in addition to a maximum deduction of Rs 1, 50,000/- available under 80C, 80CCC and 80CCD(1)

Section 80CCD (2):   It provides an additional deduction for the employer’s contribution to the employee’s pension account up to 10% of the salary, which means amount contributed by your employer will not be included in your taxable income, so NO INCOME TAX IS PAYABLE by you, on employer contribution amount.

Section 80D: It provides deduction up to Rs 25000/- on premium paid for medical insurance for self and family member (up to age 60 years). Deduction up to Rs 30,000/- for self & family member above 60 years

Section 80E:  It provides deduction for interest on Education Loan for Higher Studies for self or family members or a relative. There is no limit on the amount that can be claimed.

Section 80G: section 80G provide tax rebate upto 100% or 50% with or without restriction for donations made to charitable organizations.

Section 80GG: Section 80GG provides a deduction in House rent paid if following conditions are met:

  • The taxpayer is living on rent and not getting HRA benefit in his salary
  • The taxpayer, spouse or minor child doesn’t own any residential accommodation at the place employment.
  • The taxpayer doesn’t own any residential property in any other place.

Deduction available under this section  is the minimum of

  • Rs 60,000 annually (Rs. 5,000 monthly)
  • Total rent paid minus 10% of the total income
  • 25% of annual salary

Taxpayer needs to file Form 10BA with detail payment of rent to avail this deduction.

Section 80TTA: It provides a deduction up to Rs 10,000 on interest from saving account. This deduction is available to an Individual and HUF.

Section 80U:  Section 80U provides tax benefits if the individual himself suffers with disability while Section 80DD offers tax benefits if an individual taxpayer’s dependent family member(s) suffers from a disability. In case of general disability means at least 40% disability, deduction of Rs 75000/- and Rs1.25 lakhs for people with severe disability (i.e., 80% or more of a disability).


  1. Aggregate of deductible amount under Chapter VI-A: It is total deductible amount under chapter VIA as explained above.

  1. Total Income (8-10): It is the gross total income calculated in point 8 minus total deductible amount under chapter VIA. This is the amount on which tax is calculated at the applicable tax slab.

  1. Tax on total income: Tax on total income will be calculated as per applicable income tax slab.

  1. Educational Cess: It is the tax which is levied on the tax that you have to pay i.e on your tax on total income point 12. The rate of the education cess is announced by the government at the time of budget.

  1. Tax Payable: Tax payable is the sum of both taxes( tax on total Income + Educational cess)

  1. Relief under section 89: If you have received any portion of your salary in arrears or in advance, or your have received pension in arrears, you are allowed some tax relief under section 89. Form 10E is to be filed by the taxpayer who wants to claim relief under this section.

16 Tax Payable: It is calculated by deducting relief under section 89 from Tax payable (point 14).


Taking first step…

Category : Uncategorized

Investing is the process of trading your present money to earn more money in the future.
You have three main choices when it comes to investments: stocks, bonds, or cash. There is no one-size-fits-all answer to the question of proper asset allocation, and your ideal mix depends on your age, risk tolerance, and time frame until retirement.
It is crucial that we invest according to our life stage and are aware of the options available which best suit that life stage. For example, taxable income is relatively lower at the start of one career and tends to increase as our career progresses. This stage is also the beginning of establishing an asset base, there is little income from capital gains or interest and fewer deductions. As you grow, your income and responsibilities also tend to increase. At this stage usually, these is a family and some serious goal planning begins. Tax, at this stage, can be managed while achieving financial goals like buying a house, investing in insurance to safeguard the future of your dependents and also starting to invest to build a kitty for retirement.
Investing is a tool for building wealth, but it is not only for the wealthy. Anyone can start investing with small amounts and add to his savings (piggy box) periodically. Difference between investment and gambling is that investment takes time and is not a short cut for quick earning.