Mutual funds have become an increasingly popular investment option in recent years. With the ease and convenience of Systematic Investment Plans (SIPs), many investors are opting for mutual funds as a way to grow and diversify their portfolios. In this article, we will discuss the smart way to invest in mutual funds using SIPs.
Systematic Investment Plan
SIP full form is a Systematic Investment Plan. A SIP allows an investor to invest small, predetermined amounts of money at regular intervals, usually monthly. This method of investing offers several advantages over lump-sum investments. Firstly, it helps to eliminate the need for timing the market. Second, it encourages regular investing, which is essential for long-term growth of wealth. Third, with SIPs, an investor can benefit from rupee cost averaging, which means investing the same amount of money at regular intervals, regardless of the market price of the mutual fund. In other words, buying more units when the price is low and fewer units when the price is high.
ELSS mutual funds
When it comes to choosing a mutual fund for SIP investment, there are several options available. ELSS mutual funds or Equity-linked Saving Scheme mutual funds are a popular choice among investors. ELSS funds invest primarily in equity and equity-related securities of companies across the market capitalization spectrum. They have a mandatory lock-in period of three years, which makes them a tax-saving investment option under Section 80C of the Income Tax Act.
To illustrate the benefits of mutual fund investment through SIPs, let us take the example of an investor who starts investing Rs. 5000 per month in an ELSS mutual fund via SIP. Suppose the average annual rate of return on the investment is 12%. After one year, the investor would have invested Rs. 60,000 in the ELSS mutual fund. However, due to rupee cost averaging and compounding, the value of the investment would be higher than Rs. 60,000. As per the calculations, after one year, the total investment value would be Rs. 67,955. After two years, the total investment value would be Rs. 77,160, and after 10 years, the total investment value would be Rs. 2,41,312.
Risks
It’s important to note that mutual fund investments come with risks, and past performance is not a guarantee of future returns. The investor must gauge all the pros and cons of trading in the Indian financial market before investing and consult with a financial expert to assess their risk tolerance.
SIP Calculator
A SIP (Systematic Investment Plan) calculator is a tool used to estimate the returns on investments made through SIPs in mutual funds. SIP is a method of investing a fixed sum of money regularly in mutual funds, typically on a monthly basis. The SIP return calculator takes into account various parameters such as the investment amount, investment duration, expected rate of return, and frequency of investment, and provides an estimate of the future value of the investment.
In conclusion, investing in mutual funds through SIPs is a smart way to grow and diversify your portfolio. SIPs make investing easier, more convenient, and less risky, especially for first-time investors. With ELSS mutual funds, investors can also save on taxes while enjoying the benefits of long-term wealth creation. Start your mutual fund investment journey today, and watch your money grow over time.
Read also: Bond Basics: Understanding the Foundations of Fixed-Income Investing
