Investing in Mutual Funds through a Systematic Investment Plan (SIP) is a good way to beat market volatility and watch your money multiply. A Systematic Investment Plan is a convenient way of creating wealth over a substantial period of time. We can help you take advantage of Systematic Investment Plans with some handy advice. So, sit back and read on.
Additional Reading: Understanding Systematic Investment Plans (SIP)
It is quite common for investors to balk at a slump in the markets and discontinue their investment in a Systematic Investment Plan. This actually defeats the very goal of investing. What many fail to understand is that a downturn in the market is an opportunity to buy more fund units at a low Net Asset Value (NAV). These fund units can, in the long run, give you good returns when the market is on the upswing again.
Investing with a goal to only make money is a very vague incentive. To see true success through investing, investors must clearly outline specific, wealth-building goals that they must not lose sight of.
Making investments through Systematic Investment Plans encourages a disciplined approach to investing.
Let us tell you a few ways in which you can maximise the benefits that you get from Systematic Investment Plans.
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Set investment goals
Everyone needs a plan before they start, right? The same holds true for investing. It is very important to outline your goals before you begin investing in Mutual Funds. Decide whether you are investing money for a short-term (1-3 years), medium-term (5 years) or long-term (more than 7 years). Choose your Mutual Funds accordingly and diversify your investment portfolio.
Remember, every investment plan must have a goal. This could be a short, medium or long-term goal.
Here’s some good news about making investments through SIPs. You can create an SIP for every goal, whether it’s buying a car, going on a vacation or even paying for your child’s education. However, don’t forget that Equity Mutual Funds must ideally be considered only if the goals are long-term in nature. Based on your investment tenure, choose the level of exposure to equity.
Additional Reading: Set Your Goals Before Investing In Mutual Funds
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Set up an annual SIP
Many newbie investors make elaborate plans to invest and then lose steam at some point along the way. There could be various reasons for this, such as a lack of money to invest or setting unachievable investment goals.
When your salary increases, you should consider increasing your SIP investment amount. Stepping up your SIP investment can greatly boost your long-term savings.
Did you know, a mere 10% increase in your monthly SIP amount every year can leave you with a 45% higher investment corpus value in 10 years? It’s true! That’s the power of compounding working magic on your money.
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Match your SIP with your income frequency
For better success at investing, your Systematic Investment Plan’s frequency must depend on how often you get your income. Many salaried people find it convenient to begin investing in SIPs on a monthly basis because they can facilitate payments through an ECS mandate from their bank.
Here’s an idea. Set up an SIP at the beginning of the month as soon as your salary gets credited to your bank account. This leaves you with enough time to plan other expenses and make necessary payments through the month.
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Save taxes with ELSS Funds
Investing in Mutual Funds can also help you save on tax. By investing in Equity Linked Savings Schemes (ELSS Funds) you can claim deductions up to Rs. 1,50,000 under Section 80C of the Income Tax Act.
Additional Reading: The Layman’s Guide To Investing In ELSS
BB Tip: Rather than scampering around to make last minute investments to save taxes, open an ELSS Fund in April and contribute to it over the year. Rest assured, you can breathe easy.
Additional Reading: ELSS Funds 101: To Invest Or Not To Invest
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Stick to your SIP investment for the long term
Some people invest in the markets when it is on a high note and tend to stop when faced with a market crash. This completely defeats the purpose of a SIP. Systematic Investment Plans can minimise the effect of market volatility on your hard earned money.
An ideal tenure to hold on to investments in Equity Mutual Funds is atleast 5 years. Don’t allow minor fluctuations in market trends to upset your investment plan.
Ready to begin investing in Mutual Funds?