An SIP is basically a method to invest money into mutual funds in monthly, quarterly or yearly instalments rather than lump sum (all at once). SIP’s help investors invest some portion of their income at regular intervals rather than having to invest a major amount of funds at a single period of time which may cause a cash crunch. SIP’s are extremely important for all individuals; they are a great instrument to save money and help earn interests.
There are a few things one should keep in mind while planning to start an SIP:
Frequency: SIP’s can be scheduled according to your personal preferences, they can be placed monthly, quarterly, semi-annually as well as annually. Some individuals prefer to have a high frequency, specially people who earn fixed monthly salaries. While people who have a variable income can also opt for the less frequent options.
Amount: This is probably one of the most important decisions one has to make while choosing an SIP. The SIP amount that you have to invest should be an amount that you can invest and let go every month or quarter without feeling a lot of pressure one your cash flow. The most vital part of an SIP is its longevity and choosing an extremely high amount will lead to you causing irregular payments while choosing low amounts will cause less savings and earnings
Mode of investment: There are many ways to invest into an SIP, you can either invest directly through your bank accounts through the particular fund’s portal or you can invest through a financial services firm like begininvest.com. The thing to consider here is the costs attached to the mode of investment and its efficiency.
Funds to invest in: This is incredibly vital, the quality and performance of your funds determines the growth of your money. Choosing a bunch of funds that are effectively diversified according to your specific preferences will give you more chances to give your desired returns.
Targeted SIP: Many individuals particularly start an SIP for a particular target. For example, starting an SIP as soon as your child is born for his/her higher education, or his/her business investment etc. Targeted SIP that is started in a specific and timely manner can lead to minimizing future financial pressures.
Taxes: Systematic investment plan is also known as the fixed amount of money which is debited by the investors in bank accounts for some time. As per the holdings of current NAV it allocates specific units to an investor. More units are added in the investor’s account whenever certain amount of sums are added. In the current financial year, long-term capital gains (LTCG) are taxed on equity and equity-oriented bonds.