SIP

What does your current list of long-term goals look like? Do you plan to buy a new car, a dream home, bring home that brand new gadget, or go on a four-month world tour? Well, you can buy anything you desire but just earning money for that is not enough.

You have to plan for your big purchases and plan well. Because many know how to earn money, but a few know how to retain it. Strong financial planning can bring all your dreams to reality. And one of the first steps in building a strong financial portfolio is starting to invest in mutual funds through a SIP or Systematic Investment Plan. So, what is SIP and what are the benefits of SIP? Read on to learn more.

A Systematic Investment Plan or SIP is a way of making an investment in a mutual fund scheme. It allows you to invest a fixed sum of money at predefined intervals through regular instalments. The minimum amount can be as low as INR 500 and the payment intervals can be weekly, monthly, quarterly, or even annually. It is an alternative using which you can make staggered investments rather than making a lump sum investment and build an adequate corpus over time. 

Now that you've known what is SIP investment, read on to know the major benefits of SIP investing:

1. Power of compounding

You build a large corpus not just because of making regular SIP investments for the long term, but also because of the compounding effect. The power of compounding ensures that you earn returns not just on your principal but also on its gains.

2. Power of starting early

The key to getting the most out of your SIP investment is to start early. The earlier you start saving and investing with a SIP, the easier it becomes to reach your goals. 

3. Able to invest in small amounts

SIPs let you invest in mutual funds even if you have a small amount at your disposal for investing. There is no cap on the maximum amount you can invest. You can start investing in a SIP scheme with small regular payments and increase the instalment gradually. 

4. Habit of regular investments

We all must have experienced how growth in income triggers us to spend on upgrading our lifestyle. But you can be the wiser one and do the reverse, i e., spend only the money that’s left after investing. Also, you can automate getting the money debited from your registered account every month.

5. Build corpus

By investing in mutual funds with SIPs, you can add more units of a mutual fund scheme and yield high returns in the long term. 

SIPs allow you to invest in mutual funds systematically and through small periodic amounts. Most fund schemes have monthly SIPs and you can plan your monthly instalments as per your income. You just have to start early and invest regularly. When you take the SIP route to investments, you don't have to worry about market dynamics and can benefit from the power of compounding.

Mutual fund SIPs are not tax-free, so SIP tax saving is not possible. Upon selling your mutual fund units at a profit, you would have to pay tax on your gains. Here’s how the mutual funds are taxed depending on the types:

• Starting a SIP can be one of the most rewarding parts of your investment journey

• It can give you ample investment flexibility while giving you the freedom to not spend too much time or money on managing your investments

• All that we say to you is, start a SIP now

The above blog is published on 29th January 2023.