Are you looking for a safe way of investing in mutual funds? Do you want to maximise your return from equity funds? You may put money in equity mutual funds through the systematic investment plan or SIP if you are a salaried employee. You could average out the cost of investment and attain your long-term financial goals. However, should you invest in equity funds through the SIP if you are salaried?
What is SIP?
The systematic Investment Plan or SIP is a facility offered by mutual funds. It helps you put a fixed amount of money regularly in the mutual fund scheme of your choice. You may consider investing as low as Rs 500 per instalment weekly, monthly or yearly.
You may invest in equity funds through the systematic investment plan and avoid timing the stock market. It helps you enjoy the benefits of disciplined investing and the power of compounding over some time. You may invest in equity funds only if it matches your risk tolerance.
You could consider putting money in equity funds through SIP to average out the cost of your investment. It helps you procure more mutual fund units when stock markets are falling and lesser units when markets rise. You may find the rupee cost averaging approach helping you put money in equity funds at all levels of the stock market.
Why investing via SIP is the best option for salaried?
You may consider putting money in equity funds through the SIP if you are a salaried employee. You could set up a mandate to automate your SIP payments, depending on your investment horizon. It helps you invest in mutual funds to attain financial goals before you spend your money.
You could choose SIP dates at the beginning of the month or around the time you get your salary. It ensures that you have a sufficient balance in your bank account on the SIP deduction day. Otherwise, the AMC could cancel the SIP if your transactions fail to go through for three consecutive months.
You may find investing in equity funds through SIP convenient if you get regular income every month. However, you may consider opting for step-up SIP over the traditional SIP. It helps you automatically increase your SIP instalments by a predefined percentage or amount at regular intervals to match expected income growth.
You may invest in the equity-linked savings scheme or ELSS through the SIP if you are a salaried employee. It helps you save up to a maximum of Rs 1.5 lakh per financial year in taxes under Section 80C of the IT Act. You may find ELSS investing primarily in stocks, and it has a lock-in period of three years. It offers you the twin benefits of tax saving and wealth creation over some time.
Why invest in mutual funds through Step-up SIPs?
You may invest in equity funds through the step-up SIP if you are a salaried employee. It helps you attain your financial goals faster, as compared to the traditional SIP. For example, you may invest Rs 10,000 every month in an equity fund through the SIP for 30 years.
It helps you accumulate a corpus of Rs 3.09 crore at an expected return of 12% per annum. However, you could consider investing in an equity fund through the step-up SIP, where you may increase your contribution by 10% per year. You will get a much larger corpus of around Rs 8 crore if you put money in equity funds through the step-up SIP.
You could invest in mutual funds through the SIP if you have a fixed monthly salary. It is better than a lumpsum investment as you don’t have to time the stock market. You may reduce your expenses and hike SIP contribution through the step-up SIP to achieve long-term financial goals.
For any clarifications/feedback on the topic, please contact the writer at cleyon.dsouza@cleartax.in
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