This is a basic methodology for gathering wealth over some period of time by investing consistently at a pre-decided interval of time in mutual fund schemes; this is like the idea of recurring deposits scheme, yet this being in value come labelled with generally a higher risk and higher return than the recurring deposit.
What is Systematic Investment Plan (SIP)?
An investor decides to invest a certain amount for a continuous period at regular intervals, this makes sure that he gets more units when rates are lesser and fewer units when prices are higher. This operates on the principle of rupee cost averaging when invested at distinct levels and automatically participate in the volatility of the market.
Benefits of Systematic Investment Plan
Compounding is a very powerful element of SIP investment. To gain the profit out of power of compounding, one must start to invest early and invest regularly. A delayed start to investment will lead you to huge financial implications, which will make it difficult for you to reach till your desired goals. Investment need at an early stage is quite less whereas when you're late to start investing, more capital is required to accumulate for the same planned corpus.
It means averaging the cost price of your investments. SIP helps in averaging the cost, as equal amount is invested every month at varied NAVs. SIP works well in a volatile market because during the months when the market is running down, you get more number of units as the NAV is low and during the months when the market is high, you get lesser units. But, at the end, all the prices are averaged out. Let's understand this in detail: Suppose, you start investing with 1000 at a NAV of Rs. 10. The units required will be 100(1000/10). Next month if the NAV is Rs. 12, it will acquire you 83.33333(1000/12) units. Now, if the following months, the NAV gets to Rs. 9, it will get you 111.1111(1000/9) units. So, your average purchase cost works up to Rs. 10.19(3000/294.4444).
Return on Investment:
It is very easy to start an SIP; all you need to do is plan your savings wisely. You have to keep some money aside every month for the purpose of investing in funds. There are various ways of investing in funds; it can either be done by post-dated cheques or through ECS instructions in specific fund house. Mutual funds give better returns if you start at an early age with small amount and keep increasing it time to time. In case, you have not started to invest already, start now without any further delay. You can miss out on various opportunities, if you keep waiting for the right time. A systematic Investment Plan (SIP) is a smart investment option, which can help you in achievement of your financial goals.
With that, it also ensures you with required aggregation, which was initially planned for the specific goal.
One can achieve the benefits of SIP only, if you sign up for the right schemes and trust your instincts to continue to stick to it, without any second thoughts about it.
SIP investment in performance based and diversified scheme that is capable of offering you financial solutions for your long term goals like child education, marriage and your retirement.
Other Benefits by Investing In ELSS Mutual fund Schemes:
Income tax benefit - Investments made in ELSS Mutual Funds are eligible for deduction from taxable income under Section 80C of the Income Tax Act.
Lower lock-in period - In comparison to traditional investment avenues like PPF, NSC under section 80C of the Income tax Act, ELSS funds have the shortest lock in period of 3 years.
Tax-free dividends/Capital gains - Dividends declared under the Mutual Funds scheme during the investment period are tax-free. The profits on the sale of ELSS units are treated as long-term capital gains (refer current tax rate on LTCG).
Higher return potential - ELSS funds invest a large part of the fund in equity, which despite short-term volatility has the potential to build wealth