Advantages of investing in Mutual Funds
Mutual Fund – Systematic Investment Plans
Advantages of investing in Mutual Funds Systematic Investment Plans ( SIPs)
The following are the advantages of investing though SIPs
1) Power of compounding: The power of compounding or the concept of multiplying your money over a period of time will work properly only if invested at an early age. The longer you delay investing, the greater is the chances of not achieving your desired goals. If you start investing, your money at an early age, the greater will be the power of compounding with a significant impact on your wealth accumulation.
2) Rupee cost averaging: Everyone cannot speculate or time the market. Rupee cost averaging is an automatic market timing method eliminating the need to time the market. A SIP investor does not have to worry about where the market heads. Though SIP mode of investment does not guarantee any returns, however it minimises the loss that one would otherwise face in a fluctuating market.
3) Convenience: SIP is also perhaps the most convenient mode of investing. All that the investor has to do is provide post-dated cheques/Debit Mandate, complete with the enrolment form (need to complete the KYC requirements also, if you are a first time investor). The cheques will be banked/money will debited from your bank account on the pre-specified date on very month and the units will be credited into your account. The SIP facility is mostly available in all types of mutual funds schemes.
4) Regular saving habit/saving discipline : The most important benefit of starting SIP is that it forces you to set apart some money every month and enforces saving discipline on you and the contribution amount will be directly debited from your bank account automatically based on your standard instruction (either Direct Debit or postdated cheques)
5) Protects you from market volatility: If you have already committed money to a Mutual Fund SIP, you will most likely continue to invest regardless of a big fall or huge gains in the market. This in turn will enable you to invest regularly rather than try to time the market , which not many small investors can do successfully.
6) Tax planning: Starting an SIP in a Tax Savings Mutual Fund schemes will help the investors to reduce his tax liability to certain extant. The investor also gets the benefits of long term capital gains. If your investment is in equity fund, you need not to pay the long term capital gain tax for the gain you attained while selling the units. For calculating capital gain tax, each installments of your SIP will be considered separately (FIFO method will be followed). The dividend received from mutual fund schemes are completely exempted from income tax.
7) Accumulation of wealth: Good saving and investing habits are more likely to help you accumulate wealth in the long run, you can achieve this objective by way of investing in good mutual fund scheme through the route of SIP. But there is no guarantee that your goal will be achieved, you need to monitor your portfolio periodically. Suppose, if the scheme you invested is not performing well or market is going down, your goal will not be achieved.
8) 5) Helps of achieve your Financial goals
SIP route of investments is best for achieve your financial goals.
