If collecting a lump sum to invest in a mutual fund seems like a slow process, you should be on the lookout for something better and faster. That something is the Systematic Investment Plan (SIP). It sounds quite fancy but what it really is, is investing in instalments; something like an EMI for investments. So why is it such a good idea?
With an SIP all you have to do is select an amount that you want to invest every month and the date on which it is to be invested. The rest is taken care of by the funds through regular auto debits from your bank account. This means you invest regularly and don’t have to worry about forgetting to transfer the money.
This means no more situations where you realise that the road trip you took, or the vacation you went on, has left you with no money to invest.
Investing regularly is fine but what about the amount that you can invest? Not everyone will be investing the same amount every month and what if you can’t invest huge amounts? Well in that case and SIP helps out by allowing you to start investments with as little as Rs. 100 per month.
If you can afford to invest more, you are free to increase the amount you invest. The point is that you don’t have to wait till you reach a certain point in life and are earning a certain amount before investing.
Since an SIP is investing in a particular fund every month, investments in the market happen irrespective of them being high or low. This means you buy more shares when the prices are down and fewer shares when they are up. Such a method of investing is known as Rupee Cost Averaging and is a good strategy for long-term investments and maximising returns.
Since mutual funds invest in both the equity and debt markets you may be tempted to wait for the markets to drop considerably before investing. But, as most investment advisors will tell you, don’t bother with that timing the markets too much.
Bonus Tip: One key advantage of using an SIP is that since you start investing early, you get to reap the rewards early too. Starting this investment early means that you could have money when you need it at key junctures of your like. You could have enough for that car you want or the down payment for your dream house. Or, you could have enough to retire early and travel the world!
Everyone keeps going on about investing in mutual funds and how they leverage the stock markets to deliver returns. They will also talk about how some funds, like an Equity Linked Savings Scheme (ELSS), offer tax benefits too.
At some point you too will get influenced by the idea of investing in them. To invest you’ll think of putting money aside to invest but it may be a few months before you’re ready. But what if there was a quicker and easier way of making this investment happen?
That better way is the SIP because it allows you to be regular with your investments, makes investments more affordable and maximises your returns. The only smarter thing you can do, other than using an SIP, is to use it to invest in an ELSS. You could end up getting tax benefits of up to Rs. 1,50,000 under section 80C.