The primary way to accumulate financial security for yourself and your loved ones is by investing your earned money well. If you are looking to grow your wealth steadily, maybe a Systematic Investment Plan is the right fit for you. SIPs hold a lot of benefits that make them a great investment vehicle for investors of all kinds.
What is SIP investment?
SIP actually makes investment into a mutual fund. A mutual fund is manage portfolio of Stocks, Bonds and other securities. A SIP is a system designed to invest a fixed amount of money at predetermined intervals, usually monthly, in a mutual fund scheme.
Why Invest in SIPs?
Here are a few attractive reasons why SIPs emerge as the favorite investment tool in the country:
Power of compounding: One bigger plus point mutual funds provide through SIP is the power of compounding. When you invest regularly, your returns start earning returns on themselves. In the due course of time, this snowballing effect has the potential to increase your wealth manifold.
Disciplined saving: SIPs actually ingrain the culture of savings and investment in you. Auto-debits at regular intervals ensure saving and investing is done consistently, thereby creating a good habit that goes a long way in contributing to long-term goals.
Convenience: SIPs are pretty convenient. You could open up an SIP mandate either online or offline, with your mutual fund investment provider or a financial advisor. Once you open it, money automatically gets deducted from your bank account, getting away with the hassle of manual investing.
Flexibility: SIPs allow much control over the investment process. It is possible to start with small sizes as meager as Rs 500 per month and increase it with increasing incomes. One can pause or even stop the SIP when one needs that kind of flexibility at times of financial uncertainty.
Actual tax benefit: Investment types in mutual funds, such as ELSS, have tax benefits available under Section 80C of the Income Tax Act, 1961. Your SIP into an ELSS saves the taxes for you while increasing your wealth at the same time.
How to select the right SIP plan
Set financial goals: Clearly define the purposes you're investing for- retirement, buying a house, your child's education, or a holiday.
Risk tolerance: Calculate your comfort level with risk. For steady returns with lower risk, go for debt-oriented funds. If you have the appetite for high returns with higher risk, take equity funds.
Investment horizon: Choose a SIP investment whose tenure matches the number of years you have till the date of your goal. The longer your investment horizon, the more opportunity you get to ride out the market's turmoil and beat compound interest.
The Bottom Line
This implies that investment through SIP in mutual funds is an informed decision to achieve the financial objective. SIPs ensure rupee-cost averaging, compounded growth, discipline, and convenience with its value proposition, making it the 'ideally wise' investment decision for investors. Always consult a financial advisor and choose the best SIP investment plans according to a person's risk profile and financial goals.
