Rome wasn't built in a day, and neither was anyone's wealth. It requires patience and careful financial planning. Every individual and family has their own short-term and long-term financial goals. To achieve them, saving your money is the first step. However, it is never enough. What you need is an investment plan to optimize your returns and enjoy the power of compounding.
When you are salaried or earn a regular income, investing a lump sum into an investment instrument may be challenging. It is always easier to find an option that allows you to put your money in easy installments. If you agree to this and want an easy way to earn hefty returns, SIP is the way to go.
Let us see how a SIP can help in your financial planning.
What Is a SIP?
Short for Systematic Investment Plan, SIP is an investment instrument offered by Asset Management Companies (AMCs) to investors. SIPs allow you to put your money periodically and in pre-determined amounts into a mutual fund. The most common frequency for SIPs is monthly. You can select a date on which a particular amount gets deducted from your bank account and is added to your mutual fund account.
What Are the Advantages of a SIP?
- Easy on the Pocket
When you are working hard to fulfill the responsibilities of your family, arranging a lump sum to invest may not be possible. In this scenario, a sip scheme allows an easy alternative to earn decent returns without upsetting your budget.
It can also help if you struggle with building a discipline to save regularly. When you invest in a sip, the installment amount gets deducted automatically from your bank account.
- Tax Planning
Taxation is something that pinches every individual who works hard to earn money. While there is no running from it, investing in a sip scheme can help you reduce the taxable income under Section 80C of the Income Tax Act. The only requirement is to stay invested in your sip scheme for at least three years.
A penny saved is a penny earned. When you invest in a sip, you earn this money that would have otherwise gone into taxes. It increases your disposable income and can help you achieve your financial goals earlier.
- Effective Goal Planning
Whether you want to save for your children's education or your retirement, it is always advisable to start early. It will enable you to enjoy the power of compounding. You can accumulate a substantial amount when you stay invested in your sip scheme for a long time. It means you earn interest on principal+interest instead of earning it only on your principal amount. In fact, you can consider multiple SIP schemes if you would like to diversify your mutual fund portfolio further.
- Rupee Cost Averaging
A mutual fund collects money from a group of investors and invests this money into securities. When you put your money into it, the fund manager buys a certain number of units in your name. If you invest a lump sum, the number of units is purchased at a certain amount.
However, in a sip scheme, the fund manager buys the units in your name every month. When the market is down, you can buy more units, and when it is high, you buy lesser units. As a result, the cost of units averages out to give you better returns in the long run. Moreover, it reduces the impact of market volatility on your investments.
If you are looking for an easy investment option that doesn't compromise your liquidity and ensures optimum returns, a sip scheme could be your ideal choice. To start a SIP today and secure your future financial well-being.