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Top Benefits of Systematic Investment Plans (SIPs)

If you are looking for a safe and effective method of wealth generation with lesser risk, then SIP can be your go-to option.

  • 2,620 Views | Updated on: May 10, 2024

Are you looking for a simple, effective way to grow wealth without breaking the bank? Well, you are in luck! Systematic Investment Plans, or SIPs, are here to make your financial dreams a reality. This blog will help you explore the basics and benefits of SIPs.

With Systematic Investment Plans (SIPs), investors can start small and slowly build a corpus using an organized and well-planned approach. It helps in building a large corpus by regularly investing in profitable investment tools and simultaneously keeps a safety net of insurance for any unfortunate event. This blog will discuss the benefits of buying a Systematic Investment Plan (SIP).

What are SIPs?

Systematic Investment Plan (SIP) is an investment tool enabling you to invest a fixed amount in a mutual fund plan regularly. You can invest a set amount to be paid quarterly, monthly, weekly, or lumpsum amount at once. Once the sum is determined, SIPs automatically deduct the specified amount from your savings account and invest it in the mutual fund schemes of your choice.

Make sure to invest in only a few different funds at a time. Ideally, three to four funds are advisable for investors to invest and produce reliable returns.

Benefits of Investing in SIPs

Along with being a safe option for investment, SIPs offer many more advantages. Some of the benefits are given below; let us have a look:

Easy on Your Wallet

SIPs are like a gentle financial exercise for your wallet. You do not need a huge lump sum to start investing. With SIPs, you can start small and gradually increase your investments. It is all about consistency!

Automatic Savings

Imagine not having to think about setting aside money for investments every month. SIPs automate this process for you. You choose an amount to invest regularly, which gets automatically deducted from your bank account. No hassle, no fuss!

Power of Compounding

Here is where the magic happens. The longer you stay invested in SIPs, the more your money grows. Thanks to the power of compounding, your returns start earning returns. It is like a financial snowball that keeps getting bigger and bigger.

Risk Reduction

SIPs are like your financial safety net. When you invest regularly, you buy units of a mutual fund at various price points. It spreads the risk over time. So, if the market is down when you invest, you get more units for the same money.

Flexibility

One of the best features of a SIP plan is that it can be molded as per your choice. According to your own preferences or needs for cash flow, you can increase or decrease the amount to be invested.

Diversification

SIPs give you access to a wide range of mutual funds. You can diversify your financial portfolio across equity, debt, and gold assets. Diversification helps lower the impact of market fluctuation on your investments.

Professional Management

When you invest in SIPs, your money is managed by experienced fund managers. They make informed decisions to maximize your returns. You do not need to be a financial expert; they have got your back!

Long-term Goals

SIPs are perfect for achieving long-term financial goals like buying a home, funding your child’s education, or planning retirement. It is like a financial roadmap that leads you to your dreams.

Tax Benefits

SIP tax benefits include Equity Linked Savings Schemes (ELSS) under the category EEE (Exempt, Exempt, Exempt). Taxes are not applied to the amount invested, the amount received at maturity, or the withdrawal amount. An ELSS fund’s annual deduction limit for SIP is ₹1,50,000. It is a win-win situation – you simultaneously save on taxes and grow your wealth.

Key Takeaways

  • SIPs are a simple and effective way to grow wealth, even on a tight budget.
  • You can invest small amounts regularly and benefit from the power of compounding.
  • With SIPs, you can enjoy flexibility, professional management, and potential tax benefits.
  • These are ideal for achieving long-term financial goals, such as buying a home, funding education, or retirement planning.

Way Forward

Systematic Investment Plans (SIPs) are a simple yet powerful way to build wealth over time. These are convenient and disciplined ways to invest in mutual funds. They offer several advantages, including rupee cost averaging, power of compounding, disciplined investing, and affordability. If you are looking for a long-term investment option, SIPs are great.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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