Salaried people enjoy the perks of a fixed, regular income being credited to their account each month. This helps them to analyse their financial condition and make decisions accordingly. This is why experts advise salaried individuals to invest in mutual funds via a systematic investment plan (SIP). An SIP mode of investment ensures that regular payments are made towards mutual fund investments for a fixed period of time. Thus, it instills financial discipline among investors. Let’s understand what is SIP and why is the best mode of investment for salaried people.
What is SIP?
SIP is an investment vehicle provided to investors who wish to invest in mutual funds. Under SIP investments, a small but considerate amount is invested periodically towards their desired mutual fund schemes for a defined period of time. Details such as the date on which the investment dates place, investment horizon, SIP investment amount, frequency of the investment, etc is pre-decided by the investor. The frequency of the SIP investments can be daily, weekly, monthly, quarterly, or annually. As an investor, you can invest as low as Rs 100 in SIP mutual funds.
How do SIP investments work in the favour of salaried investors?
SIP investments help an investor to benefit from the volatile markets. When the markets are low, more units of the fund is purchased, and vice versa. This is known as rupee cost averaging. Thus, SIPs help to turn market volatility and market downturn in the favour of an investor.
It’s advised to begin investing in SIP as early as possible, preferably from your first paycheck. This is because a young investor has an extended investment horizon to achieve his goals. They also get greatly benefitted with the benefits of compounding. Compounding ensures that an investor earns further gains on their returns, making their capital grow quickly. What’s more, if you begin to invest young, you wouldn’t have a lot of responsibilities and household duties as compared to a married person or a parent. Thus, with no financial burden you can save for your goals from a young age and work towards achieving them.
Experts recommend salaried investors to set their SIP date nearing or on the same date as the salary being credited to their accounts. This ensures that an individual is able to save enough before splurging their entire income. What’s more, if you haven’t availed the benefits of any other tax-saving investments, you might consider investing in ELSS funds. Equity-linked Savings Scheme (ELSS) are tax-saving mutual funds that offer an investor the dual benefits of wealth creation and tax-saving benefits. ELSS funds have the potential to generate significant returns when invested for a long duration. Just keep in mind the three-year lock-in tenure that is associated with investments in ELSS. Don’t wait for your next paycheck to invest in mutual funds via SIP. Start today. Happy investing!