The most appropriate method to achieve your financial goals is to invest in a systematic investment plan. This helps not only with disciplined investment but also offers benefits like compounding and rupee cost averaging.
In this guide, let’s discuss how one can begin their journey towards financial freedom using SIPs and also maximise tax saving mutual funds.
Understanding SIP Investments
SIP or Systematic Investment Plan is an investment plan offered by mutual funds where investors can make regular, fixed investments such as every 5th day of a month. This creates a habit of investing regularly while taking advantage of price fluctuations over time.
Benefits of SIP Investments
- Regular Investing: Regular savings are what you call it when you have been putting aside some money for yourself financially in the future.
- Rupee Averaging: This spreads out the cost by buying more units at lower prices and fewer units at higher prices through regular contributions.
- Flexibility: One may start with small amounts and increase their contribution levels as they earn more.
Tax Saving Mutual Funds
Equity-linked savings schemes (ELSS), also known as tax-saving mutual funds offer the advantage of probable wealth accumulation plus the opportunity to save on taxes according to section 80C of the Income Tax Act. This means that if you invest in such funds you can take off up to rupees one hundred fifty thousand from your taxable income thus making you less liable for tax.
Why Invest In A Tax savings Mutual Fund?
- Tax Benefits: Investment in ELSS qualifies for a deduction of INR 1.5 lakh u/s 80C.
- Short Lock-in Period: Compared to other tax-saving instruments like PPF and NSC, ELSS has a lock-in period of just three years.
- High return: Over the long term, traditional tax saving instruments have lower returns as compared to ELSS which is an equity-oriented scheme.
How to start SIP investment online?
Simple and convenient to begin SIP investment online. Here’s how you can do it.
- Choose a Mutual Fund: Select a mutual fund based on your financial objectives or risk appetite.
- Register Online: You can visit their website on mutual funds or use a reliable investing platform for registration purposes.
- Complete KYC: This is a must-do for all investors; complete the Know Your Customer (KYC) process.
- Set Up SIP: You select the amount of SIP, frequency (month as well as quarterly), and duration and provide bank details for auto-debiting purposes.
- Monitor and Adjust: Have an eye on your SIP investments and adjust the amount or fund as per the goal of your life according to your financial goals also
Using SIP Return Calculators
What is a SIP Return Calculator?
The SIP return calculator is an online tool that helps determine the value of mutual funds invested through this method over time. This needs to be in place for proper planning and attainable financial goals.
How to Use a SIP Return Calculator?
- Input Details: Input some of the details like monthly investment, the expected rate of returns, and the tenure you will invest in it.
- Calculate: It will display the approximate maturity value and the total amount invested.
- Analyze: Use these results to analyze whether your current SIP investments align with your financial goals and if necessary make changes.
How to maximize your SIP investments?
- Review Your Portfolio Regularly
It is important to review your investment portfolios regularly so that they can meet your objectives and also reflect the current market status. Consequently; if necessary, adjust either by increasing your SIP or altering the MF.
- Diversify Your Investments
Allocation of investments in various mutual funds and asset classes helps to manage risks and maximize returns. Depending on risk tolerance and financial aims consider a combination of equity, debt, and balanced funds.
- Stay Invested for Long Term
A good value of money can only be realized if individuals hold onto their SIP investment for an extended period. Compound interest works in a good manner when allowed to work over a long time thereby enabling you to build substantial wealth.
What are common mistakes to avoid in SIP investments?
- Not Starting Early
The biggest mistake one can make is delaying their SIP investments. The earlier you start, the more time compounding has to work its magic on your money.
- Ignoring Risk Profile
Investing in mutual funds that do not correspond with your risk appetite may lead to disappointment and possible loss. Select funds that are consistent with your risk tolerance levels and investment objectives
- Stopping SIP During Market Downturns
This idea of halting sip investments during market downturns could be unhelpful. Market stagnations provide lower prices hence chances for buying many units leading to better returns when the market bounces back again.
Conclusion
To start your financial journey, it is advised that you begin with SIP investments to achieve your financial targets. Through this, you can use tax-saving mutual funds and make SIP investments online, therefore; it will assist in creating a regular habit of investing and become a good support for their future savings. It is also important to make use of a SIP return calculator or any other useful tools to help you plan and optimize the investments done to ensure maximum returns.
Disclaimer: Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
