At this time, having a financial system in your life that’s stable should be your top priority. Having the secondary source is the need of the hour and creates a big difference. While many people are exploring different options like freelancing, part-time jobs, or other side gigs, one of the major overlooked aspects is Mutual Fund SIPs or Systematic Investment plans.
These SIPs can be a great source of revenue that can supplement your main income source and thus make you financially stable in life. In today’s blog, we will tell you all the major benefits of SIPs and cover all the major elements of this strategy.
Before we dive deep into this topic, let’s quickly understand what exactly mutual fund SIP is. SIPs are a great and disciplined process of investing in mutual funds, where you can contribute a fixed amount at different intervals.
The invested money is then contributed to other sources of investments into a diversified stock portfolio or bonds or other types of securities as needed. All this process is done through highly experienced fund managers. Now, if that’s clear. We will move to the main point of how Mutual Fund SIP can become a source of your second income.
The first step towards any financial investment is to understand the level of financial risks you can take and your financial risk tolerance.
Ask these questions:
Understanding the importance of risk tolerance and getting ahead with that will help you choose the correct Mutual Fund for the right SIP portfolio.
When you are investing in SIP, diversity should be considered as a major strategy. Instead of putting all your fund into one asset, and losing if that goes down or does not rise so much, spread your investment into different assets and classes.
This can help you to reduce the risk factor and help in enhancing returns. A well-crafted and diversified mutual Fund SIP portfolio includes debt funds, equity funds, and even hybrid plus international funds as well.
A big benefit that SIPs have is called the power of compounding. By continuously investing a certain fixed amount over time, you can directly benefit from the returns that have been generated from your returns. This can have a snowball effect and can provide a great source of second income in the long period.
The journey of investing in SIP doesn’t end with SIP and just the investment. Depending upon the different conditions you have to monitor the portfolio of your SIP to check whether these aspects are aligned with the goals and risk tolerance.
Then depending upon the different financial situations you have to make decisions whether to change the Mutual Fund SIPs plan or increase the amount.
To make the best investment and get the best returns from the SIP, you have to understand the importance of SIP and how it changes the tax system for you. Equity-oriented SIPs that are held for the capital gains tax. But this tax is exempted for a certain period. The income that’s generated by SIP will show a gradual growth over some time.
By being tax-efficient through the SIP investments, you will end with a great amount of SIP returns that will stay within your pocket.
While within the long term, the SIPs can help you with great returns when thinking of them as a great source for second income. One thing is that SIP Mutual Funds are not get-rich-quick schemes.
The incomes generated from SIP are very gradual. Think of a SIP like a drop of water and it will slowly and steadily fill the bucket over time. The bucket will take time to fill up, but it will fill up over time and overflow too. SIPs are like that and you will reach your financial plan with SIPs at a certain point in time.
To create SIPs as a second source of income you have to integrate the SIPs into your financial plans. Determine the amount of financial income you want from SIP and then backtrack the goal with your regular SIP investments.
You have to consider the factors like future expenses and inflation costs as well during SIP investments.
While SIPs provide multiple benefits, they also come with risks. You have to be aware of these risks. Some of the risks are:
From Market volatility to inflation to unforeseen expenses to your personal financial goals changing over time, you have to take in these factors when investing in SIP mutual Fund.
Mutual Fund SIPs can be a great and reliable way to generate a great source of income. By making a full financial plan assessing your financial goals, having a diversified portfolio and using the power of compounding and staying true to financial goals you can gain financial independence over time and have SIPs as a great source of second income.