Everybody wants to become rich without taking a risk or incurring a loss. This is the human nature, and this is also the reason behind the popularity of systematic investment plans or SIPs which allow investing a specific amount at regular intervals of time in a systematic manner. Let’s have a look at some of the reasons behind investing through SIPs:
- It is a hassle-free option: It is possible to start SIPs online with a click of the mouse. Also, investors can review and update portfolios online and take corrective actions, if required. Further, to pay the SIP amount, you can issue a one-time standing instruction to your bank to facilitate auto-debits from your account. In this way, you don’t need to worry about missing out on the due date of your investment. Furthermore, you don’t need a huge corpus to get started as SIPs can be started with an amount as low as Rs 500- Rs 100/month.
- It minimizes the risk of equity fluctuations with rupee cost averaging: As you are a regular investor, your money fetches more units when the price is low and lesser units when the price is high. During volatility, you can get a lower average cost per unit. It evens out the market volatility if one is investing for a long duration. Those people who don’t understand the market, SIP is a good option. There is always a chance that one stays out when the market is growing or enters when it is underperforming. However, SIPs take care of this concern. As you are investing regularly; you don’t need to ‘time’ your entry into the market, and you can easily ride through the ups and downs of equities with great ease.
- It gives the benefits of compounding: The power of compounding works magic over time, therefore, the sooner you start investing, the more your money grow. Even a delay of a few years can have a major impact on the wealth accumulated in the long run. For instance, if you start investing Rs 5000/month on your 30th birthday, you would have Rs 1.08 crores by the time you retire at 60, considering 10% rate of returns. However, if you start your investment at the age of 35, you would have Rs 64.90 lakhs, considering 10% rate of returns. Also, in the long-run, you can enjoy benefits from the power of compounding as one earns interest on the accumulated interest also.
- It makes you a disciplined investor: While investing, it is important to maintain a disciplined approach. However, maintaining discipline is easier said than done because many new expenses come unannounced in the way. Taking the SIP route is one step taken towards becoming a disciplined investor. As you have to invest a fixed amount periodically, you develop the habit of saving over a period. As a result, when you invest through SIP, you become more disciplined and committed towards your investment.
- It is flexible: While it is strongly recommended to stay invested for a longer duration of time, you can discontinue the plan as per your choice. Further, if there is an additional source of income or you want to increase your SIP amount, the same can be done by just requesting the fund house.
- It gives tax benefits: Your SIP investments in equity-linked saving schemes are eligible for tax benefits under Section 80C of the Income Tax Act. Further death benefits received by your nominee or maturity proceedings paid to you at the time of maturity are also tax-free.
To enjoy the above benefits, choose the right investment avenue and start investing in it through SIP which gives returns higher than the inflation rate.