SIP or Systematic Investment Plan is a method of investing in mutual funds, where you invest a fixed amount of money at regular intervals, such as weekly, monthly, or quarterly. SIP results into lowering the cost of investments resulting in higher returns.
SIP investing has become a popular choice for many investors, especially millennials, who want to save regularly and benefit from the power of compounding.
Here are some of the benefits of SIP investing that you should know:
Disciplined Saving:
SIP investing helps you develop a habit of saving and investing regularly, which can help you achieve your financial goals in the long run.
By setting aside a fixed amount every month, you can avoid unnecessary spending and build a corpus for your future needs.
What is Rupee Cost Averaging:
Ruppe cost Averaging is a way to reduce the cost of holdings by investing at regular invervals and to benefit from market volatality.
SIP way of investing helps us to buy more units of mutual funds when the market is low, and less units when the market is high. This reduces the average cost per unit of your investment, and helps you earn higher returns over time.
This is known as rupee cost averaging, which can help you overcome the volatility of the market.
What is Power of Compounding:
Power of Compounding is the result of gaining higher returns by allowing your interest to remain invested and to earn interest on the interest in cumulative way.
SIP investing enables you to benefit from the power of compounding, which means earning interest on your interest. By investing for a longer period, you can multiply your wealth as your money grows exponentially.
For example, if you invest Rs. 1,000 per month for 20 years at a 12% annual return, you will have Rs. 9.9 lakhs at the end of the period.
However, if you invest the same amount for 30 years, you will have Rs. 35.1 lakhs, which is more than three times the amount.
Flexibility:
SIP investing gives you the flexibility to choose the amount, frequency, and duration of your investment.
You can also increase or decrease your SIP amount as per your cash flow situation or financial goals.
You can also stop or pause your SIP anytime, without any penalty or exit load.
Convenience:
SIP investing is very convenient and hassle-free, as you can start it with a minimum amount of Rs. 500 per month.
You can also automate your SIP payments through ECS (Electronic Clearing Service) or NACH (National Automated Clearing House), which will deduct the amount from your bank account and invest it in the mutual fund of your choice.
Diversification:
SIP investing helps you diversify your portfolio across different asset classes, sectors, and themes.
By investing in a variety of mutual funds, you can reduce your risk and optimize your returns.
You can also invest in different types of mutual funds, such as equity, debt, hybrid, or thematic, depending on your risk appetite and investment horizon.
Tax Benefits:
SIP investing can also help you save tax, as some of the mutual funds are eligible for tax deductions under Section 80C of the Income Tax Act.
These include Equity Linked Savings Schemes (ELSS), which have a lock-in period of three years, and offer higher returns than other tax-saving instruments.
You can also claim tax exemption on the long-term capital gains (LTCG) from equity mutual funds, up to Rs. 1 lakh per year.
Conclusion:
SIP investing is a smart and simple way to create wealth in the long term, by investing small amounts regularly.
It offers you several benefits, such as disciplined saving, rupee cost averaging, power of compounding, flexibility, and convenience, diversification, and tax benefits.
If you want to start your SIP journey, you can reach out to us at tradeyogafinance@gmail.com or call 9920490815.
You can use a SIP calculator to estimate your returns and plan your investments accordingly.
Happy Investing
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