Thursday, June 13, 2024

Features of SIP that Can Benefit Investors

Features of SIP that Can Benefit Investors

How many of us could possibly invest a big amount in investment vehicles? Not all of us, right? If you are wondering about the same question, then you must start your SIP investment soon.  SIP- which means a systematic investment plan is here to the rescue because it is the opportunity to invest a fixed sum every month. 

Read this blog to learn more about the benefits of investing in an SIP. But before that, let us first understand a bit about the basics of SIP.

What is a SIP?

A structured Investment Plan, or SIP, allows you to invest a small quantity on a regular basis in your favourite mutual fund plan. When you activate a SIP, a certain amount is withdrawn from your bank account each month and invested in the mutual fund that you chose.

A SIP, unlike a lump sum investment, allows you to spread your investment over time. As a result, you don’t need a significant sum of money to begin investing in mutual funds through SIPs. By investing through a SIP, you are obliged to set away a sum at regular intervals, which aids in the long run in instilling a feeling of financial discipline.

Among most SIPs in today’s investment market, the mutual fund environment has some of the best SIP options for modern-day investors today.

Now that we know what SIP investment is – let’s get going to the main part. The features that make SIPs highly beneficial are provided below.

Beneficial Characteristics of SIPs

a) Flexibility: SIP allows you to be quite flexible. SIP allows you to avoid long-term obligations such as investing in assets such as Public Provident Funds or Unit Linked Insurance Plans. These are open-ended funds that can be withdrawn whenever you choose, as opposed to fixed-term funds. You can withdraw the entire or a portion of your investment without incurring any losses. The investment amount is also adjustable; it can be increased or decreased.

b) Rupee Cost Averaging: The Rupee Cost Averaging function of SIP is unique in that you buy more units when the market is low and less when the market is high. This is due to the basic feature of SIP, in which you buy more at every market correction, lowering your cost of investment and increasing your gains.

c) Compounding: Are you seeking a secure but rewarding investment? Due to the compounding interest effect, SIP has the potential to grow to a significant amount over time, even with a small, regular contribution. Compounding is a scenario in which the interest collected is reinvested back into the mutual fund for increased returns. The compounding effect increases the rewards and investments for the long term through the sip. Without a doubt, this is a huge benefit for investors who wish to earn more in the long run. You can learn more about it by calculating your monthly contribution for a specific period with a SIP return calculator.

d) Small Payments: One of the many key advantages of investing in SIP is that it allows investors to pay in small denominations. To put it simply, SIP accepts investments in denominations of 500 and 1000 only, and once the initial investment of 500 is made, investors can pay in higher denominations of 1000 starting with the next payment.

e) Save Up on Tax: Sips is one of the most effective tax-saving tools. Under section 80(c), you can deduct up to 1.5 lakhs from your taxable income for investing in ELSS through SIPs. As a result, investment and saving go hand in hand. That sounds fantastic, doesn’t it? Does it not?

f) Organized: If you choose to sip, you can invest in it on a weekly, monthly, or quarterly basis, according to the program. Mutual funds are built on the systematic use of money and its distribution with interest. Investors in the sip debit fixed sums of money into bank accounts on a regular basis, which are then invested in certain mutual funds. Based on the ongoing net asset value, or nav, the SIP investor is allotted a specific number of units. More units are added to the investor’s account as the money is invested.

g) Security: SIP is a safe investment since the funds are invested in the mutual fund plan chosen by the investor. Furthermore, mutual funds are an excellent way to begin an investing career. Mutual funds provide strong exposure to the equity market with minimum risk for those who are unfamiliar with stocks and shares. Aside from that, the money is invested on a regular basis, making it easy for the investor because it is deducted immediately from the bank.

A Few Things To Note Before Choosing Your SIP

Once you’ve decided on a specific fund, set the appropriate SIP parameters to get the most benefits from SIP. Fill in the blanks for questions such as:

  • The duration of the investment.
  • The frequency with which investments are made.
  • The quantity of money invested.
  • The pertinent data depends on the goals and financial circumstances.

Final Takeaway

A systematic investment plan offers far more benefits than merely an investment plan. This is an investment choice for investors of all ages who want to save money, earn capital, and save even more on income taxes. But first, let’s go through the important aspects of a systematic investment plan (SIP) that you should be aware of before beginning this investment.


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