Once you have decided to invest your money for your bright future, nothing can be better than investing through Systematic Investment Plan (SIP). Like little drops of water make the mighty ocean, SIPs help in accomplishing the financial goals by investing a smaller amount on a regular basis that eventually turns into a huge corpus.
Here are some of the benefits which you can enjoy by investing through SIPs:
1. Easy to start and maintain
You do not have to set aside the time from your schedule to make the investment. You can either submit post-dated cheques or give a standing instruction to your bank to activate the auto-debit facility. Further, you can keep a tab on the performance of your SIP investments online and take corrective actions, if required.
As you can start investing with an amount as low as Rs 1,000 or Rs 500, it is easy to start and maintain your SIP investments. It is highly impossible to create a huge corpus unless you invest a small amount over a period of time.
2. Average the purchase cost with rupee cost averaging
As the equity market is known for its volatility, many investors try to curtail its impact by ‘timing’ their purchase in the market,e., buying when the market is low and selling during the peak time. However, it is a tough task to ‘time’ the market. You can never be sure when the market will hit bottom or reach to a new height. The only way to deal with this is by averaging out your purchase cost over the long period which you can do with SIPs.
With SIP, a fixed sum is regularly invested, irrespective of the market conditions. Thus, it minimises the impact of fluctuations and helps you generate more returns from your investment. Your regular investment can help you overcome the ups and downs of the market with great ease.
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3. Generate more returns with the power of compounding
Compounding means earning interest over the reinvested interest. Thanks to the power of compounding, even a small amount can turn into a large corpus. For instance, if you start investing Rs. 10,000/month on your 30th birthday, you would have Rs. 1.50 crore by the time you retire at 60, considering the rate of returns as 8%. However, in case you start your investment at the age of 35, you would have Rs. 95.74 lakh at the age of 60, at the same rate of returns.
4. Boost discipline: Many times, people start investing with great enthusiasm, but fail to keep the same zeal with the time. However, SIPs end this dubious approach. It forces investors to invest a fixed amount regularly, irrespective of what the market conditions are. As a result, the investor becomes disciplined and committed towards their investment. Since the money is auto-debited from the bank account, the chances of you missing the investment due date are low. You can also set up the SIP date right after your salary day to ensure you invest the money before spending.
Many times, people start investing with great enthusiasm, but fail to keep the same zeal with the time. However, SIPs end this dubious approach. It forces investors to invest a fixed amount regularly, irrespective of what the market conditions are. As a result, the investor becomes disciplined and committed towards their investment. Since the money is auto-debited from the bank account, the chances of you missing the investment due date are low. You can also set up the SIP date right after your salary day to ensure you invest the money before spending.
5. Give flexibility
Though it is strongly advised to stay invested for a maximum duration of time, one can stop SIPs in between or even keep continuing it after the tenure. Moreover, it is feasible to increase the SIP amount and switch money between different funds as per the requirement. For instance, you can invest through SIP in ICICI Pru Easy Retirement and exercise the switching option to switch money among different options, like equity or debt.
6. Offer tax benefits
The SIP investments made in equity-linked saving schemes get tax benefits under Section 80C of the Income Tax Act. Further maturity amount or death payouts made by the insurer are also tax-free.
To sum up, those who wish to play safely in the equity market without taking too much risk should start investing in SIP.
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