Mutual funds are one of the simplest and safest ways to invest your money. But before investing, investors usually wonder whether it’s better to make a lump sum investment or go for a systematic investment plan (SIP). While there are advantages to both methods, there are some more compelling reasons to invest in an SIP. From rupee cost averaging to tax benefits, here are the top 5 reasons why investors should consider investing through SIP inmutual funds.
You can invest small amounts regularly
An SIP can be a great way to get started with investing if you don’t have huge funds to invest in a lump sum. It allows you to set up automatic investments from your bank account so that a fixed amount is deducted each month and invested in your chosen mutual fund. Moreover, you can invest in SIPswith an amount as low as Rs 500 and choose the tenure according to your requirement and suitability.
Potential for higher returns with rupee cost averaging
Investing through an SIP allows you to take advantage of rupee cost averaging. This simply means that when you stay invested and make regular contributions over time, you end up getting more units when prices are low and fewer units when prices are high, bringing down your average cost per unit. Over time, this can help increase your returns without having you worry about market fluctuations. However, it is important to mention that rupee cost averaging works well as a long-term strategy.
Easy withdrawals for emergency
A financial emergency can occur at any time. To get over the difficult time without getting financially stressed, you could choose to withdraw your SIP investment and use the fund to cover unexpected expenses, such as medical bills or home repairs. This is because the funds in an SIP are not subject to the same restrictions as other investment products. However, to note that it is not a prudent practice to withdraw your SIP investment every time you face a financial crunch. This, in fact, defeats the purpose of SIPs helping you grow your wealth in the long term.
You can stop the SIP anytime
Another great thing about investing through an SIP is that you can stop or change the SIP amount anytime without any hassle. So, if your financial situation or goals change over time or you need to cut back on your investment, there’s no problem – you can simply opt out of the SIP plan.
Can help you save on taxes
SIPs also come with a number of tax benefits that can help you maximise your investment returns. Under Section 80(C) of the Income Tax Act, 1961, you can avail tax deduction of up to Rs. 1,50,000 on your taxable income for investmentsmade into ELSS (Equity Linked Saving Schemes) via SIPs.
However, note that Equity Linked Saving Schemes are mutual fund investment scheme funds that come with a lock-in period of 3 years.
- Closing notes
With its ability to help you stay disciplined and take advantage of rupee-cost averaging, an SIP investmentcan be an effective tool for achieving your long-term financial goals. Plus, with an SIP calculator, it’s easy to compare different plans and find the one that fits your needs and goals.