Introduction
A systematic investment plan, commonly referred to as SIP, is a seamless and hassle-free channel for investing in schemes. SIPs involve investing certain amounts at regular intervals. For salaried individuals, their monthly salary allows them to set aside money regularly, which they can then invest with. For salaried professionals, SIPs are a better option than lump sum investments in mutual funds.
How Are SIPs Beneficial for Salaried Professions?
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1). Rupee-cost Averaging
Equity market investors should always be ready for volatility. Fortunately, with SIPs, you can relax without needing to pinpoint ideal times to enter the market. The technique of rupee-cost averaging gives regular investors a way around that challenge; by investing a fixed sum of money at set intervals, you will buy more units when the market drops and fewer units when it is soaring.
2). Compounding
Compounding is a very simple mechanism that carries great rewards. It basically refers to when your returns start accruing more returns themselves. It can be achieved by reinvested returns that yield even greater returns. In the early stages of your career, you will have a longer investment period and be able to take advantage of compounding.
3). Discipline
A SIP involves investing a fixed amount at regular intervals, creating a regular investment and saving pattern. As a successful investor, discipline is key. Large-cap schemes can deliver returns as good as recurring deposits.
4). Convenience
With SIPs, investing is simplified and hassle-free. Your bank can send standing instructions for auto-debits at desired intervals. After following the plan, you don’t need to do much additional work. This is a huge relief for a working professional.
5). Flexibility
In general, SIPs should be taken up for the long term, but you can discontinue them at any time, reduce the investment amount, or increase it.
SIP Tips for Salaried Professionals
Here are a few tips that can help you optimize your SIP investments :
Set the SIP date near your payday so you can save some money before spending any. You can take advantage of tax saving schemes through mutual funds if you pay income tax. Large-cap schemes offer strong returns over a longer period of time, so you can opt for them if you have a long-term vision.