Systematic Investment plans are just what the term implies. Systematic and consistent savings can lead to a compounding of returns. The SIP is the best way to create a corpus that suits all your needs. The small amount you invest every month does not pinch your pocket and also adds up to a lot of money in the long run.
SIP’s are the best way to beat inflation. The market-related investment is capable of generating a Compound Annual Growth Rate of about 15% if your investment is held for over 10 years or so. You have to choose your funds carefully to suit your investment strategy and risk profile.
The thumb rule of 15*15*15 elaborates that if you invest 15,000 over 15 years @15% CAGR you can generate a corpus of Rs 1 crore. If you hold the investment pattern for 30 years with the same monthly investment and tentative CAGR the returns are a whopping 10 crore.
SIPs are convenient as you can invest as little as Rs 500 and there is no limit to what you invest. It is linked to the equity market, so it gives a good return but you need not be a whiz at the stock market. The Mutual fund manager looks after the investment for you. These highly trained fund managers are responsible for the daily operations as per the schedule of investments mandated in the fund prospectus. You can choose the fund that suits your profile and leave the management in the capable hands of the fund manager.
SIPs are also tax efficient. They attract a long term capital gain tax of 10% if you hold them for over a year. But if this is lower than your tax slab, you may save a lot on tax. The threshold is an earning of over Rs 1 lakh in a financial year from the sale of mutual funds.
The best route to smart savings is through SIPs. Invest in 4-5 good funds as per your financial plan and sit back to see your money multiply.