SIP Investment, SIP Mutual Funds

SIP Investment and SIP Mutual Funds

Investing smartly and systematically in investment portfolio and Mutual funds known as Smart or Systematic Investment Plan, can make you rich.

What is SIP?

A Systematic Investment Plan (SIP) involves regular investment of a fixed sum in a SIP Mutual Fund portfolio. Investment by way of buying units regularly on the specific date will enable the investor with the leverage of managing his resources of funds. This is also a way of inculcating the habit of savings in one self. By planning SIP on a regular basis, he or she can definitely look at generating wealth in the long run. People often get confused as to how to calculate their total return on investment. Logging on to https://www.wealthcareindia.com/sipCalculator.php will simplify the matter.

The beauty of the SIP is that you can plan your investment either on monthly basis or quarterly basis or yearly basis. The number of units the investor can buy depends on the current market price of the units. With SIP and Mutual Funds being flexible, the investor has the right to decide on the amount to be invested.(https://www.wealthcareindia.com/fundPerformance.php)

SIP mutual funds

SIP Mutual Funds

SIP Mutual funds are a way of providing opportunity for an individual to invest in multitude of stocks through respective fund managers. As an individual, a person may have access to information on a few stocks at a time. In a mutual fund, the money will get invested into a bundle of stocks and the entire process is managed professionally by experts. To an extent, the risk factor is lower than directly investing in equities. Investment in SIP Mutual funds will take care of the interest of the investor.

SIP Mutual funds possess and allows for diversification which in turn means that an investor’s money is pooled with investments from others. This means you will be buying a part out of the pool of investments. Thus, the investor will have lot of options in choosing the plan of his choice. https://www.wealthcareindia.com/fundFactsheet.php gives a systematic review of each mutual fund and SIP, providing you with details like the entry and exit load, their provisioning for equity and debt, the Net Asset Value etc.

Further, few asset management companies also offer insurance cover. So, in a way you get two benefits in one!

Why SIP Mutual Funds for you?

There are many reasons why you need to go with SIP Mutual Funds. Few of them can be:

  • You can choose the minimum amount to be invested, providing you with financial flexibility
  • Diversification will be built in in the mutual funds which you can utilize to your advantage
  • Innovative method of SIP helps you in planning for your future
  • Any additional and surplus available can be allocated for investment
  • You can also increase, decrease, stop and pause your SIP anytime. For ex. If you invest Rs. 5000 monthly for 20 years, (assuming return of 12%) you would have accumulated wealth of Rs. 50 lakhs. However, with a top up of 10% every year, you would have accumulated Rs. 99.5 lakhs!
  • Many types of funds are available for individuals to choose from
  • The SIP Mutual Funds would help you in getting higher returns
  • Under the able management of SIP Mutual Funds by experts, you can be rest assured regarding professional management of your investment
  • Over the years, the funds invested starts growing and get compounded. Use the magic of compounding to your advantage
  • It imbibes savings habit in a person.

Comparison with FD as an investment

There may be doubts in the mind of the investors regarding ways of investment and where exactly to invest. There are many people who think that investing in fixed deposit (FD) is the best option and risk free.

  • FD being a low risk investment will also come with a lesser interest rate and subsequent lower returns. Mutual Funds, on the other hand gives more return. The interest rate on Fixed Deposits are usually lower than the inflation rate and thus, the value of your money decreases, when you invest in an FD.
  • Further, interest on FD accrues for a specific period of time and it is fixed. There is no chance for compounding of the money invested as is the case with SIP Mutual Funds.
  • As indicated, FD investment carries low risk due to the investor knowing beforehand the amount which he or she will get on maturity after a fixed time. It is also a fact that the returns are also low. However, investment in SIP Mutual Funds will be much more advantageous to the investor.
  • One of the most important aspects to be considered before investing in FD is the lock in period. Once invested, your money is locked for the entire duration of the FD till maturity date. In case, you require money for any urgent need, withdrawal comes with a cost. You need to forego certain amount of the maturity value as a penalty. However, in case of SIP Mutual Funds, withdrawal is not difficult and only when the money is withdrawn before the holding period, a nominal charge will be levied.
  • Last bit not the least, SIP Mutual Funds give you the benefit of Tax savings while interest accrued on FD is taxable. You can also defer your taxes in case of Mutual Funds investment. However, when it comes to Fixed Dposits, you have to pay tax on interest every year.

Comparison with PPF as an investment

Let us compare the investment in SIP Mutual Funds with PPF.

As is the case with FD, PPF guarantees the investor with an assured return but there is strict lock-in period. You can withdraw money from PPF, but it’s restricted to a certain percentage and thus, the money invested cannot be used during financial emergencies.

The returns on PPF are known to be at par with the inflation rate and thus, the value of your money, does not increase much, over a period of time. Investors invest in PPF, in order to avail benefit under Section 80C. As per the directive of the Government of India, an investor can invest only Rs. 1.5 lakhs a year to claim the benefits from section 80C.

Consider This:

If you would have started investing Rs. 1 lakh annually from March 1996, as of April 2018, you would have gained Rs. 42 lakhs (approx.), against total investment of Rs. 23 lakhs. The total value of your investment would have been Rs. 64 lakhs 91 thousand.

However, if you’ve had invested same amount annually in equity fund, you would gained 6 crore 85 lakhs.

SIP mutual funds

Investment in equity mutual fund scheme, would no doubt had given you 3 times more return annually.

Hence, Investment in equity mutual fund scheme is no doubt a better option.

Why you should invest when the market is down

When you invest in a SIP, the fund manager buys units of several companies for you, based on their research and opportunity for profit. When the market is down, the stock price value of the respective shares is generally lower. This means that if you start investing in a SIP when the market is down, or if you invest a higher amount of money, you will be able to buy many more units, at the same price, as opposed to when the market was higher. Most financial advisors advice starting an SIP or increasing the SIP amount, when the market is down. In the long term, it will make you a lot of money.

Conclusion

If you are an investor with flair for accumulating wealth, then SIP Mutual Funds are the best option for you. Your investment will not only be growing but at the same time gives you the flexibility of planning your future. SIP gives you flexibility, fulfil your dreams and allows you to be a stakeholder in India’s growth story. It is one of the best financial instruments to invest in, if long term wealth creation is your goal.

Mukesh Gupta

Wealthcare has been promoted by Mr. Mukesh Gupta who is a Fellow Chartered Accountant (FCA), Certified Financial Planner (CFP) and Certified Public Financial Planner. He has over 22-years experience in the Wealth management industry. He previously worked with Birla Sunlife Group. He occasionally writes for newspapers and appears on television for matters related to personal finance and Wealth management.

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