Personal Finance

6 Reasons to Invest SIP

Systematic Investment Plan (SIP) is the mutual fund equivalent of recurring deposit wherein you put a fixed amount of money every month in your choice of mutual fund.

Here are
6 CONVINCING REASONS FOR YOU TO START INVESTING IN AN SIP RIGHT AWAY 

1. INCULCATES DISCIPLINED INVESTMENT SIP inculcates disciplined investment
Spending more and saving less is a bad habit. Everyone has a lot of dreams and desires, but not everyone has the pockets deep enough to meet them. Through SIP you inculcate a disciplined investment habit, wherein you invest every month a fixed sum in a good mutual fund scheme, ensuring you are not only spending but also saving something every month and this money will help you reach your financial goals.

2.  LIGHT ON WALLET
SIPs can be started with as low as Rs 500 per month, an amount very easy to commit without any strain on your wallet. So instead of splurging on lavish meals or buying things you don’t need, through SIP, a pre-decided fixed amount will be deducted every month from your bank account and invested in a good mutual fund scheme, helping you put your money to better use.

3. RUPEE COST AVERAGING
Most common mistake an investor makes is investing at market peak and selling at market lows. Through SIP since you are investing a fixed amount regularly, you end up buying more number of units when the markets are down and less number of units when the markets are up. This is called rupee-cost averaging.  SIP works as a good discipline as it forces you to buy even when the markets are low, which actually is the best time to buy.

4. COMES WITH POWER OF COMPOUNDING SIP provides benefit of compounding
When you invest every month, not only you generate returns on your capital, but through a SIP, you generate returns on your returns as well. Suppose you invest Rs 3,000 every month and in first month you get a 5% return, so the next month your total amount invested in the mutual fund will be Rs 3,150 plus the other Rs 3,000 you will put at the start of second month. So your fund manager has to now generate returns on Rs 6,150 not Rs 3,000. The same cycle carries month-after-month till you stay invested. If we do simple math, if you invest Rs 3,000 every month for 20 years through SIP in your choice of mutual fund scheme, assuming that you get 12% return per annum*, you accumulate Rs 30,00,000 after 20 years (on an investment of Rs 7.2 lacs).

That’s the power of compounding.

5. TAX FRIENDLY
An equity SIP is very tax friendly; any gains arising from investments held for more than a year in equity schemes is tax free. In fact if you choose to invest in a tax saving mutual fund scheme (ELSS) through SIP you get the power of SIP + tax deduction under Section 80C {S80C of Income Tax Act provides deduction of Rs 1 lac from your taxable income for investment made in 80C approved securities}.

6. OFFERS EASY LIQUIDITY
Investment in mutual fund scheme through SIP is easy to liquidate in case of emergency {unless you have chosen a tax saving fund which has a lock-in of 3 years}. You can put in a redemption request today and your money in liquidated immediately and you receive your money within 3 working days {in fact in most cases you get the next working day itself}.

To start a SIP or for more details SMS <Arihant> to 56677 or email mutualfund@arihantcapital.com

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