The stress-induced fcc-austenite to hcp-martensite transformation in the iron based shape memory alloy (SMA) Fe-17Mn-5Si-10Cr-4Ni with and without VC precipitates is investigated by in-situ neutron diffraction measurements upon uniaxial loading and unloading. Based on experimentally derived elastic moduli the critical resolved shear stress (CRSS) for the fcc to hcp phase transformation was calculated. VC precipitates promote the martensite transformation by shifting the CRSS from 152 MPa to 85 MPa. A nearly perfect plastic behavior is found for the (220) grains with a high Schmid factor of 0.47. While (220), (111) and (200) oriented grains exhibit a phase transformation, (311) grains plastically deform solely by slip. During plastic deformation a load redistribution from soft behaving (220) grains to hard behaving (200) orientated grains takes place. The presence of VC precipitates leads to a broadening of the stress interval at which a martensite transformation is induced. This is explained by spatially heterogeneously distributed martensite transformation temperatures which are caused by VC precipitates. The microstructural reason for pseudo-elasticity is found to be a combination of back transformation from hcp to fcc and a reversible motion of Shockley partial dislocations.