On the 1st of February 2018, the Budget 2018-19 was presented in the Lok Sabha by the Union Finance Minister – Arun Jaitley. The major highlight of the budget was the reintroduction of the Long Term Capital Gains (LTCG) tax.
Soon after the announcement of the LTCG tax was made by minister Jailtey, a debate about the usefulness of mutual fund SIP investments sparked amongst the investment experts and financial gurus. A large number of investment gurus wrote off mutual fund SIP schemes and started supporting traditional insurance-investment instruments such as the ULIP plans. In fact, many insurance companies even started pushing their best ULIP plans as an alternative for SIP investment in the light of LTCG taxes.
But here’s the deal… one cannot deny the fact that investment in mutual fund schemes helps beat inflation and also helps grow one’s wealth manifold.
But here’s something that most people remain unaware of – there are multiple risks when it comes to mutual fund investments. Mutual funds invest into the market and if you do not time your investment well then you may end up losing all your hard-earned money in the market. The market is often volatile and even one wrong investment move can wash away all your capital. This is where the systematic investment plans or sip comes to your rescue.
Let’s now understand what exactly does SIP investment means and why is it beneficial for investors.
Understanding What Systematic Investment Plan Means
SIP is a way to invest in the mutual fund schemes regularly. It is like a recurring deposit where a fixed amount of money is invested regularly. The difference is that this money is invested into buying mutual fund units. Also, the investments that you make into mutual funds expose you to the risks in the market.
You have a disciplined approach when you invest via SIP and you understand how to save regularly. Thus, the best SIP plans help build wealth in the longer term. It is a mode of investing in the mutual funds market and since your money is invested into mutual funds, it carries market risk.
You can choose a date when you wish the money to get deducted from your account in order to get invested into a mutual fund through SIP. This amount can be as high or as low as you wish to set it to. The minimum investment amount allowed in SIP is Rs.500. Many mutual fund schemes will also allow you to transact on the fund online.
Benefits of Investing in the Best SIP Plans
There are way too many benefits of investing in the best SIP plans as compared to other investment instruments such as ULIP plans, endowment plans, etc. Let’s look at just some of the many benefits of investing in SIP plans.
SIP Helps You to Achieve Your Life Goals
Be it an expensive vacation or buying your dream car, SIP is a smart way to start your financial journey and save money in a disciplined manner. The systematic investment plans are well researched and diversified investment plans and prove to be the best investment instrument for those who aim to build wealth by investing money for a long term. On the other hand, SIP would seldom benefit investors with short-term wealth creation goals.
SIP is not speculation! You may be following the trend of the market and investing lump sum money in funds that have done well in the past. This creates a momentum and you are in and out of your investment quickly. But this is not what investing actually means. Following this trend is okay if the market is doing well and is up-trending, but as soon as the market starts down-trending; all the winnings will soon turn into a loss.
The mutual fund investment schemes offer an ocean of opportunities to make wealth, but it makes sense to get the right guidance and financial discipline to reap the maximum benefits. This is where SIP comes into the picture.
SIP Helps Harness the Power of Rupee-Cost Averaging
You can choose to invest a fixed amount of money in a SIP scheme. In addition, you may also choose the time period of investment. Financial experts suggest you use a SIP calculator in order to calculate the amount of return you will be able to generate with your intended capital and the time-period of investment chosen by you.
Doing this will help you spread out the risk of investment and thus when you buy when the market is doing well and the mutual fund units are costly, you buy lesser units and when the market hits the bottom and the prices are down, you buy more units. In the end, you end up averaging out your investments in the market. When you invest regularly, you get to participate in different trends in the market.
This is known as the rupee-cost averaging and the process lets you reduce the average buy price and help you expose your capital to minimum market risk. Rupee-cost averaging helps you spread out the risk in a long-term horizon and help you make the maximum bangs for your bucks.
SIP Helps You Realize the Magical Power of Compounding
When you invest in the best SIP plans, you end up getting into a habit of disciplined investing. SIP investments help you make your money grow manifolds with the help of the power of compounding. In SIP investment schemes, your money earns cumulative returns; quite naturally, your money grows manifolds helping you generate a higher return on your investment. In order to understand how the power of compounding works to grow your capital, it makes sense to use a free online SIP benefits calculator.
SIP Facilitates Stress-Free Investment
It is essential to time your investments well in order to generate the maximum profits on your investments. Sadly, Timing the market right remains one of the biggest hurdles for investors, especially the first-time investors. No one can predict the times when the market will be experiencing highs and lows. With SIP investment options, you can invest in the market at varied times and thus do away with the stress of keeping a regular eye on the market situation. You don’t have to review and rebalance your portfolio regularly. In addition, mutual fund investments through ELSS helps you avail tax exemption.
Over to You!
So there you have it – benefits and advantages of mutual fund SIP investments. Now it’s time to put the learning into practice. So go ahead and invest your hard-earned money in the best SIP plans and see your money growing manifolds, without having to run from pillar to post.
