A SIP or systematic investment plan can work wonders on your invested sum of money in mutual funds with the help of power of compounding. For example - If you invest an amount of Rs. 15,000 per month in a chosen mutual fund over 12 years, the estimated corpus amount would be Rs. 48,33,783. This is against a total invested amount of Rs. 21,60,000. Hence, with the help of long-term investing, it is a wise idea to invest in SIP for the completion of your long-term financial goals. Not only goals, but this substantial corpus also acts as a cushion during times of financial exigencies. One needs to be patient with the process of SIP investing, to get maximum benefits out of it.
Why have SIPs gained popularity?
Here are some of the primary reasons as to why SIP investment plan is gaining immense popularity -
→ Accessibility:
SIP in mutual fund schemes is easily accessible to investors, including those with limited knowledge or experience in investing. Many financial institutions and asset management companies offer user-friendly online platforms and mobile apps to initiate and manage SIP investment plan.
→ Affordability:
SIPs allow investors to start with small amounts, even with Rs. 500, making it affordable for individuals with varying income levels. This makes it an attractive investment option for salaried individuals, young professionals, and those starting their investment journey. It is a myth that one needs a large sum of money to start a mutual fund SIP, but that is not true.
→ Professional Management:
SIP investments are typically managed by professional fund managers who have expertise in analysing the markets and making investment decisions. This relieves investors from the burden of extensive research and monitoring, especially for those with limited time or knowledge about investments.
→ Tax Benefits:
SIP in equity linked saving schemes (ELSS) of mutual funds, offer tax benefits under the Income Tax Act, 1961. Investors can avail tax deductions of up to Rs 150,000 in a financial year from their taxable income while potentially earning higher returns compared to traditional tax-saving investment options like PPF, NSC, etc.
How does SIP work?
SIP work on the principle of rupee-cost averaging and compounding. When investors invest a fixed amount regularly, they end up buying more units when prices are low and fewer units when prices are high. This way, investors get the advantage of averaging out the cost of their mutual fund investments, reducing the impact of short-term market fluctuations. Over time, the power of compounding helps in generating substantial wealth as returns on previous investments also earn returns.
When you invest in SIP, it is essential that you have a fair estimate of what can be expected out of the investment process. This helps you in planning better in terms of the periodic amounts, time frame, type of fund, etc. That’s where a financial tool like SIP calculator comes in the picture. With simple variables, it helps one get a fair idea on their assumed investment corpus and plan their finances accordingly. These tools like the SIP return calculator or target calculators are available online and spells out the results in seconds.
SIPs in mutual funds offer an accessible investment option for individuals with different income levels, making it an attractive choice for many investors seeking financial growth. In this read, we focused on why SIP investment plan is popular and how a SIP calculator can help you navigate the investment journey better.
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