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How does SIP help in the wealth creation process?

Wealth creation is a goal many aspire to achieve. One effective and disciplined way to build wealth over time is through Systematic Investment Plans (SIPs). SIPs allow investors to invest a fixed amount of money regularly in mutual funds. This method fosters consistent saving and investing habits. In this blog post, we’ll explore how SIPs contribute to wealth creation, their benefits, and some strategies to maximize returns.

What is an SIP?

A Systematic Investment Plan (SIP) is a way to invest in mutual funds where you invest a fixed sum at regular intervals, such as weekly, monthly, or quarterly. Unlike lump-sum investments, SIPs spread your investment over time, reducing the impact of market volatility and making investing more accessible.

Benefits of SIPs in Wealth Creation

1. Disciplined Investing: SIPs encourage regular investments, instilling a habit of saving and investing consistently. This disciplined approach helps in building a substantial corpus over time.

 

2. Rupee Cost Averaging: SIPs help mitigate the impact of market volatility. By investing a fixed amount regularly, you buy more units when prices are low and fewer units when prices are high. This averages out the cost of your investments over time, known as rupee cost averaging.

 

3. Power of Compounding: The returns generated from your SIP investments are reinvested, leading to compound growth. Over the long term, compounding can significantly enhance your wealth.

 

4. Affordability: SIPs allow you to start investing with a small amount, making it accessible for individuals with varying financial capacities. You don’t need a large sum of money to begin your investment journey.

 

5. Flexibility: SIPs offer flexibility in terms of investment amounts and intervals. You can increase or decrease your SIP amount, pause investments, or even stop them altogether, depending on your financial situation.

How SIPs Work in Wealth Creation

1. Long-Term Investment: SIPs are ideal for long-term investment goals. The longer you stay invested, the more your money grows due to compounding. It is essential to remain patient and avoid withdrawing your investments prematurely.

 

2. Regular Monitoring: While SIPs require less active management than other investment methods, it’s crucial to monitor your investments periodically. Keep track of the performance of the mutual funds in which you have invested and make adjustments if necessary.

 

3. Diversification: Diversifying your investments across mutual funds can reduce risk and enhance returns. Consider spreading your SIPs across equity, debt, and hybrid funds to balance risk and reward.

 

4. Goal-Based Investing: Align your SIP investments with specific financial goals, such as buying a house, funding education, or planning retirement. Goal-based investing provides clarity and motivation to stay invested.

Practical Strategies to Maximize SIP Returns

1. Start Early: The earlier you start investing through SIPs, the more time your money has to grow. Even small investments made early can result in significant wealth over time due to the power of compounding.

 

2. Increase SIP Amounts Gradually: As your income grows, consider increasing your SIP amounts. This step can accelerate your wealth creation process without putting a strain on your finances.

 

3. Stay Consistent: Consistency is key in SIP investing. Avoid stopping your SIPs during market downturns. Instead, view market corrections as opportunities to buy more units at lower prices.

 

4. Review and Rebalance: Periodically review your investment portfolio and rebalance it to align with your financial goals and risk tolerance. Rebalancing ensures that your portfolio remains diversified and optimized for growth.

Conclusion

Systematic Investment Plans (SIPs) offer a structured and disciplined approach to wealth creation. By investing a fixed amount regularly, you benefit from rupee cost averaging, the power of compounding, and affordability. SIPs encourage long-term investing, regular monitoring, diversification, and goal-based investing.

 

To maximize returns, Start early, increase SIP amounts gradually, stay consistent, and periodically review and rebalance your portfolio. SIPs can be a powerful tool in your wealth creation journey. With patience, discipline, and strategic planning, you can achieve your financial goals and build a substantial corpus over time.

Should one consider investing in innovative SIPs?

 

Since the equity market is climbing a new high every other day, would you suggest investing through Smart SIP? – Anonymous

 

Smart SIPs are an innovative offshoot of a regular SIP.

 

They are smart because the amount of money that gets invested in equity each month depends on how the markets are faring.

 

They have an algorithm that decides whether the markets are expensive or cheap based on specific parameters. So, if the algorithm believes the market to be richly valued, only a part of your SIP amount is invested in equity. The rest of it is diverted to a liquid fund, which is a type of debt fund. And if company stocks are trading at a discounted price, more money is invested in equity and less in a liquid fund.

 

That is broadly how smart SIPs work.

 

In theory, it looks like a winning strategy. You invest less in equity when they are expensive and seek refuge in a debt fund, and vice versa. But in practice, there is an element of timing the market, which no-one can perfect on a consistent basis.

 

The power of simplicity

 

In fact, the plain-old SIP is actually a solution to the problem of timing the market. In this case, you keep investing in the market regardless of whether it is expensive or undervalued. While this may read like a high-risk option, SIPs benefit from rupee-cost averaging.

 

For the layperson, rupee-cost averaging means that you buy more mutual fund units when stock prices go down and fewer units when prices are high. So, this simple yet effective strategy negates the risk and stress of second-guessing and timing the market. Additionally, it helps you to be disciplined with your investments, a key ingredient to building wealth in the long run.

 

To summarise, we suggest you stick with regular SIPs and keep it simple.

 

Source- Valueresearchonline

Five SIP facts you may not be aware of

 

This story is fitting for a new as well as an intermediate SIP investor. And with SIPs to the tune of Rs 14,000 crore being pumped into the market, we thought the timing was right to know more about SIPs too. So, let’s get started.

 

1. The best time to start SIP is now

 

If you have heard this before, skip to Point two. But those who haven’t or are currently in the start-now or start-later confusion, here’s why you should not delay your SIP further: the markets are in constant flux; something or the other keeps happening. If you keep procrastinating, nothing good will come out of it.

 

On the other hand, SIPs, by design, are meant to help you navigate the ups and downs of the market, thanks to rupee cost averaging.

 

Rupee cost averaging? Here, your SIPs buy more stocks when they are available at a lower price and buy less when stock prices become expensive. That’s what all investors want, right?

 

 

Sure, you will go through a rollercoaster of emotions, as seen in the table above, but you will come out the other side better than you were before, as seen in the above Sensex chart.

 

Hence, start your journey now.

 

2. Never pause or stop your SIPs at a market high

 

Stopping or pausing your SIPs should be for valid reasons and not because you wish to be clever with your money.

 

Let’s assume both Mr A and Mr B have been investing in HDFC Flexi Cap Fund with a monthly SIP of ₹10,000 for the last 15 years. Mr A keeps investing irrespective of how the market is performing, whereas Mr B pauses his SIPs for three months whenever the Sensex hits an all-time high. Care to guess who is cleverer? Let’s find out.

 

Too clever for your own good?
Pausing SIPs at market high may yield marginally higher returns, but at the expense of a smaller corpus

 

  • Monthly SIP: Rs 10,000 for last 15 years
  • Mr A never stops SIP
  • Mr B pauses SIP for three months during Sensex highs

 

 

Mr B earned a mere 0.13 per cent higher returns for being clever. Worse, he invested Rs 4.5 lakh less and ended up with a lower corpus by 11.46 lakh.

 

Therefore, you win no points for trying to be clever with your SIPs. Just keep at it; stay consistent.

 

Plus, Mr B will always have to correctly guess the market’s future movement. What if he, like all of us, gets it wrong most of the time? The final returns would be even lower!

 

3. Don’t try to be tactical with your SIP amount

 

Let’s say you keep doing an SIP of Rs 10,000 for 10 years. It will not make any meaningful difference whether you increase your SIP to Rs 15,000 when the market crashes or decrease it to Rs 5,000 when the markets rally.

 

That’s because your SIP amount gets increasingly insignificant compared to the corpus you have accumulated in the long run. See the table below, and you’d observe how the weight of an SIP instalment reduces over time.

 

 

4. Be patient with your SIPs. Time in the market is important

 

The most important factor with your SIPs is time. The more time you invest, the bigger your corpus will get. Let’s see how much wealth you can create by 60 if you start a Rs 10,000 monthly SIP at the age of 25 years, 30 years and 35 years.

 

The power of time in the market
Start early and witness the magic of compounding in your later years

 

 

The numbers in the above box tell you everything. The younger you start, the better it is.

 

5. It matters when you need the money

 

Timing matters for SIP investors.

 

Say, you kept doing your SIPs religiously, and when it was time to withdraw, the market crashed. Your overall returns would be hit too.

 

But if the markets rally, so would your overall wealth, as seen in the table below.

 

Climax gone wrong
It can all go wrong if you plan to withdraw when markets crash

 

SIP: Rs 10,000 per month in HDFC Flexi Cap Fund (Regular)
Duration: 10 years

 

 

Fortunately, there’s a solution to ensure your hard-earned investment is not wrecked at the last minute because of the market: Systematic withdrawal plan (SWP) and proper asset allocation .

 

Source- Valueresearchonline

Invest lump sum in aggressive hybrid funds?

 

“Can I invest a lump sum of Rs 10 lakh in an aggressive hybrid fund, since it is not a pure equity fund?”, asked one of our readers.

 

Investors often ask this question because they co-relate the importance of SIP and the averaging cost of purchase with equity funds alone. However, it is equally important to not invest a lump sum in equity or equity-oriented funds. For instance, in aggressive hybrid funds. To understand why, let us quickly look at how aggressive hybrid funds work in the first place.

 

Aggressive hybrid funds or equity-oriented hybrid mutual funds

An aggressive hybrid fund invests in both equity and debt securities. However, their allocation in equity and related instruments is higher (65-80 per cent) than in debt instruments. In other words, they can even be called equity-oriented funds.

 

Theoretically, the equity-debt combination helps them balance high returns and stability. However, because of their higher asset allocation in equity, they are subject to volatility and market risks.

 

Understanding the impact of market on aggressive hybrid funds

 

For instance, this graph illustrates the ten worst one-year rolling returns of the Sensex index and aggressive hybrid Funds. There are two things to notice here.

 

Firstly, it is evident that aggressive hybrid funds, despite being equity-oriented, have weathered the equity market downturn better due to their debt component. This aspect provides a protective cushion, resulting in smaller losses compared to pure equity funds, like the sensex index fund for instance.

 

More importantly, this graph indicates how a lump sum investment can suffer from massive losses if it experiences a market fall. In this scenario, if you had invested a lump sum of Rs 1 lakh just a year before March 2020, you would have suffered a 21 per cent loss over the year, leaving you with just Rs 79,000. This is why investing the entire sum at once doesn’t make sense.

 

The alternative

This is where SIPs step in.

 

They have the ability to shield your investments from short-term market fluctuations and thus protect you from risk. SIPs ensure that you do not invest a significant sum during a market high and then suffer from a subsequent fall.

 

When you invest through an SIP, it allows you to invest only a portion of your money, albeit on a regular basis, irrespective of the market conditions. As a result, when market prices are high, fewer units are purchased, and when prices are low, more units are bought.

 

In the longer run, your investment ends up with an average purchase cost, thus reaping the benefits of a disciplined approach to investing. This is commonly known as ‘rupee cost averaging’.

 

The timeline

Now you know you shouldn’t invest a large sum of money, all at once. Instead you should opt for an SIP.

 

The only question is – how much time should you take to invest this money?

 

An efficient way of calculating your investment timeline is to calculate the time it took you to accumulate these funds. Ideally, you should invest this money in half that time.

 

However, it is recommended that you invest this money in not more than three years.

 

Three years is a good time to go through an entire market cycle, and capture both the market rise and fall.

 

Beyond this timeline, there isn’t any real advantage to staggering your investment. In fact, a major downside to a longer timeline is that you may be tempted to spend this money.

 

Our take

Do not invest a large sum all at once. Instead, always plan an SIP.

 

To calculate the timeline for your SIPs, consider the following:

  • How large is this sum?
  • How important and valuable is this money for you?
  • How much time, effort, and energy went into accumulating it?
  • Invest the money over a shorter duration if you have a higher income.
  • Or, if your risk appetite is low, invest this money over a slightly extended period.

Do not take more than three years to invest your lump sum.

 

The key to your wealth, dear reader, is always in disciplined investing!

 

Source- Valueresearchonline

What’s best for STP?

 

Ram, one of our subscribers, recently contacted us, saying he had received Rs 50 lakh from a property sale and wanted to invest in a hybrid fund to build a sizable retirement kitty.

 

But since Ram knows he should not put the entire money in a mutual fund in one go, he is wondering if stashing the money in an arbitrage fund and then setting up an STP to a hybrid fund over the next three years would be the better option.

 

That way, he’d be able to spread his Rs 50 lakh investment in a hybrid fund over three years, and at the same time, the money that would lie in the arbitrage fund would earn acceptable returns.

 

His proposed idea got the number-crunchers working in our dark, damp dungeon excited, now that they had a new project of finding out if there were better options than an arbitrage fund.

 

But before we lay out the numbers, let’s take a step back and understand what on earth an STP is and its benefits for the larger audience.

 

What is STP

 

Full name: Systematic transfer plan.

 

Role: It allows investors to transfer a specific amount from one fund to another at regular intervals.

 

Benefits: Markets are generally volatile over short periods. Therefore, putting all your money in a mutual fund in one shot is not ideal, as it can fall in value over the short term.

This is where an STP comes in.

 

It ensures your large sum of money – Rs 50 lakh in Ram’s case – is protected from market volatility, while earning acceptable returns that match or beat inflation at least.

 

Last but not least is the STP’s ability to provide the benefits of rupee-cost averaging. In layperson’s terms, spreading your investment helps avoid catching the market high. Instead, you invest more when the markets are depressed, and less when markets are expensive. (This is a strategy investors dream of, to be honest).

 

Now that we know what an STP is, let us tackle Ram’s question of whether he should put his Rs 50 lakh in an arbitrage fund and then start an STP to a hybrid fund.

 

Tackling Ram’s question

Arbitrage funds have competition in this space. Besides them, Ram can also think of stashing his Rs 50 lakh in the following options:

  • Fixed deposits (FDs)
  • Short-term debt funds
  • Bank savings account

 

Let’s tackle arbitrage funds first. Over the last 12 months to five years, these funds have generated 3.9-5.19 per cent on average, and their tax outgo is 15 per cent in the first year and 10 per cent after that.

 

Short-term debt funds. They have delivered 5.68-6.51 per cent returns on average in the last 12 months to five years, and the tax outgo depends on which tax bracket you fall under. For instance, if you earn over Rs 10 lakh per annum and are in the old tax regime, your gains from these funds will be taxed at 30 per cent.

 

Fixed deposits. FDs have delivered assured returns in the 6-7 per cent range in recent years, but you can be taxed up to 30 per cent on the interest earned. Worse, you’ll need to pay tax yearly, unlike short-term debt funds where you pay tax only when you withdraw your money.

 

Even worse is that FDs aren’t very STP-friendly. Here, you need to manually withdraw your money each month to get the STP going. Hence the reason it’s not recommended.

 

Savings account. The humble savings account in your bank offers assured interest of around 3 per cent. (There are a few small banks that provide 6 per cent interest as well).

 

But even in their case, you can be taxed up to 30 per cent on the interest earned, though interest up to Rs 10,000 is tax-exempted if you are below 60.

 

What should Ram or you do

There is no clear winner here. Different options have different strengths (and weaknesses).

 

From a tax perspective, arbitrage funds emerge victorious.

 

From a returns perspective, they are all closely bunched together. Perhaps, short-term debt funds eke out slightly higher post-tax returns than the other three options. Looking ahead, these funds will provide higher returns as yields of bonds have risen in the last few months. By that logic, returns of arbitrage funds will rise too, as some portion of their portfolio is invested in debt.

 

That said, returns should not be of paramount importance when you plan to start an STP. You should look at capital preservation instead.

 

In that case, savings account, FD and short-duration debt funds hold up well. But let’s rule out FDs because, as mentioned earlier, they are not well-configured for STPs.

 

Lastly, if you prefer convenience over an extra per cent or two returns, you can simply stash your money in a savings account and start an SIP to a hybrid fund.

Source- Valueresearchonline

 

Wealth Creation: What is SIP step-up strategy and how you can use it to reach financial goals faster?

SIP step-up strategy: Systematic Investment Plan or SIP is one of the most convenient and effective methods to invest in mutual funds. This feature in mutual funds helps investors in planning their financial goals and slowly working towards them. There are various strategies used while investing through SIP — one of them being step-up strategy.

 

What is a SIP step-up strategy?

A step-up SIP entails automatically increasing monthly SIP contributions on a periodic basis. According to Tanvi Kanchan, Head Corporate Strategy at Anand Rathi Shares and Stock Brokers, with a ‘Step up SIP’ strategy or a ‘Top Up SIP’ plan, investors can gain the benefit of increasing their contribution in SIPs, either by a fixed percentage or a fixed amount.

 

She added that investors can do this in line with their current income, expected yearly increments, and financial goals. This lays down a set plan for the investor to reach the predetermined investing amount over a period of time and increase their investments in a systematic manner.

 

How does SIP step-up strategy work?

For example, if an investor starts with a monthly SIP of Rs 5000 with an annual step-up of 10 per cent, at an expected rate of return of 12 per cent and an investment horizon of 10 years:

That is the impact of systematic investments and gradual increase in the same.

According to Tanvi, investors can also put a cap on the maximum amount they wish to invest per month. For instance, if an investor’s current SIP is Rs 5000 per month, then they can define in the step-up SIP plan that they wish to step up the monthly investments in SIP to Rs 10,000 per month. So, as soon as the step-up plan reaches this amount, it stops adding any further and the normal SIP amount continues.

 

When is the right time to step up the SIP?

According to experts, these are the best times to step up the SIP:

-Post-appraisal time

-When there is an increase in compensation or reduction in expenses

-When markets are going through a bad phase

“Increasing your monthly SIP installment in proportion to investors’ income boost is wise, especially if their expenses are yet to increase correspondingly,” said Varun Girilal, Managing Partner at Scripbox.

 

How does SIP step-up strategy benefit investors?

Experts believe that following are the benefits of the SIP step-up strategy:

-Getting inflation-beating returns

-Building a more substantial investment corpus to achieve future financial objectives.

-Achieve your goals sooner than anticipated

-Helps in translating increased earnings into their already ongoing SIPs

He believes that increasing the SIP amount by 10 per cent for a 15-year investing period can help investors get a corpus that is 70 per cent higher for the same time frame of 15 years of SIP investing.

 

What are the drawbacks of SIP step-up strategy?

– Increased complexity: The SIP step-up strategy requires more planning and preparation than a standard SIP strategy because investors must periodically change the amount of their investment.

– Higher costs: Depending on the investment product used for the SIP, higher investment amounts may attract higher fees, leading to increased costs.

– Market timing risk: The SIP step-up strategy is dependent on the market continuing its upward trend; but, if the market experiences a downturn, then the investors may compound their losses by increasing their investment in a market slump.

– Behavioral biases: Investors may be tempted to stop or reduce their investments during market downturns, which could lead them to miss out on potential gains in the long run.

– Limited liquidity: The SIP step-up strategy typically involves committing to regular investments over a set period of time, which can limit liquidity and flexibility in the short term.

 

Source: Zeebiz

Missed Your SIP Payment? Here’s What You Can Do Now!

A systematic investment plan or SIP is one of the superior means to invest in mutual funds. SIPs require the investor to invest an amount they can afford into a mutual fund scheme of their choice. Moreover, they are required to link their bank account to their SIP. The SIP amount is then debited on a monthly basis on the due date of the SIP.

 

What If You Missed Your SIP Payment?
One of the common concerns for investors is that what if their account balance becomes low or they are not able to pay for their SIP due to any reason? Well, if you too have been in the same situation, you are not alone. Remember, missing a SIP payment is extremely common. Insufficient balance in the bank account is one of the prime reasons that many investors forget to pay for their instalments. However, missing a SIP instalment is something you should not worry about. Your investments will continue in a case like such. Moreover, the fund house will also not charge a penalty for missing the payment.

 

What To Expect?
A SIP is an investment that may seem to come with the only drawback of an insufficient corpus due to a missed instalment. What many people do not know is that even if they have missed a SIP payment, they can put money into their bank account as their payment would easily be done as and when the next SIP date arrives. What’s best is that their investment won’t suffer due to a missed SIP instalment.

 

Things to Look Out for
Missing one or two SIP payments will not have any adverse reaction to your corpus. However, there are two things that you must keep in mind regarding your missing SIP payments. They are:

• If an investor missed their 3 consecutive SIP payments, their SIP investment is terminated by the mutual fund house.

 

• The bank may charge the investor a penalty at the time when the bank account is low and the investor misses out on a SIP payment. This is referred to as dishonouring the payment. A charge is involved in cases like such.

 

How You Can Avoid Missing Your SIP Payments
If you do not want to end up missing your SIP payments, here is what you can do:

• Keep track of your bank balance account. In case, your bank balance becomes low and you find it insufficient as per your SIP payment, try increasing the balance before the SIP due date arrives by depositing some amount to the bank account.

 

• If you know for a fact that you will not be able to pay the SIP payment due to an unavoidable financial obligation, you can go ahead and stop your SIP. Once you feel that your financial crunch is over, you can simply restart the payment. During the same, your earlier SIPs would continue growing if you do not redeem them.

 

• Pausing your SIP investment is also one of the options you can go with. Especially, if you are expecting heavy expenses as well as liquidity issues. Remember, any mutual fund houses will grant you the freedom to pause your SIP instalments for up to a certain number of instalments. The mutual fund house can also allow you to pause SIP instalments for up to a certain period after which they begin automatically. Keep in mind to check if the AMC provides the same option and pause your SIPs for a few months when you encounter a financial crunch.

 

Final Words
There is no need for you to be concerned if you have missed a few SIP instalments due to unavoidable circumstances. But, make sure you understand that this would not mean that you can miss out on paying many SIP instalments as it would end up affecting your corpus in a massive way.

It is highly advised to avoid missing the SIP instalment. Furthermore, cover up for the loss by making additional purchases in the scheme if you cannot avoid not missing your SIP payment.

 

Source: Insurancedekho

Tax Saving Mutual Fund SIPs: 5 reasons to invest

As we are approaching the final quarter of the current financial year, tax planning will be one of the most important priorities for many tax payers. Section 80C of Income Tax Act 1961, allows investors to claim deductions from their taxable incomes by investing in certain eligible schemes. In this blog post, we will discuss 5 reasons why you should invest in tax saving mutual fund schemes referred to as Equity Linked Saving Schemes (ELSS), and the Systematic Investment Plan (SIPs)offered by them.

 

Reduce your tax obligations for the current financial year
The most obvious reason for making 80C investments is tax savings schemes. You can claim up to Rs. 150,000/- deduction from your gross taxable income by investing an equivalent amount in ELSS or other eligible 80C schemes; you can save up to Rs. 46,800/- in taxes (for investors in the highest tax bracket) every year. SIP is a disciplined way of making tax saving investments throughout the year to achieve maximum tax savings.

 

Create wealth over a long investment tenor
ELSS mutual funds are usually the best performing 80C investments in the long term. These schemes are essentially diversified equity mutual funds, which invest in equity and equity related securities. While ELSS investments are subject to market risks, historical data shows thatequity is the best performing asset classin the long term. Nifty 100, which is the index of 100 largest stocks by market capitalization (large cap stocks), has given 12.6% annualized returns in the last 5 years, much higher than other asset classes like fixed income and gold (source: Advisorkhoj Research). Further ELSS mutual funds are managed by professional and skilled fund managers. The table below shows the interest paid by different 80C investment schemes and historical returns of ELSS category.

 

Maximum Liquidity
ELSS offers the maximum liquidity amongst all 80C investment options. PPF has a tenor of 15 years with very limited liquidity in the interim. Minimum investment tenor of all non-ELSS 80C schemes is 5 years. ELSS mutual funds have alock-in period of only 3 years. Your money is not locked up for long periods of time in ELSS and you have the option of redeeming your investment partially or fully after the lock-in period. When investing in ELSS through the SIP route, investors should remember that each SIP instalment will be locked in for 3 years and should plan accordingly.

 

Tax Advantage
Investment proceeds of some 80C investments like PPF are tax free, but interest paid by some 80C investments are taxed as per the income tax rate of the investor. Till the beginning FY 2019, ELSS capital gains / profits were tax free but a change in taxation was introduced in this year’s Union Budget. Capital gains of up to Rs 1 Lakh in ELSS mutual funds will be tax exempt. Capital gains in excess of Rs 1 Lakh will be taxed at 10%. Incidence of tax in ELSS investments arises only at the time of redemption and not during the term of the investment. Even with the introduction of the capital gains tax, ELSS remains one of the most tax efficient 80C investment options.

 

Convenience and Flexibility
ELSS offers investors the convenience of investing through SIP mode in which you can invest fixed amounts every month (or any other frequency) for tax savings. SIP not only helps investors stay disciplined, it can also help them get higher returns through Rupee Cost Averaging. ELSS SIPs offers a lot of flexibility. Unlike PPF or life insurance plans, there are no penalties or policy suspensions, in the event of missed payments in ELSS SIPs. You can stop and restart your SIPs at any time. However, if you miss 3 consecutive SIP instalments due to insufficient funds in your bank, your SIP will be cancelled and you will have to make a fresh application to restart your SIP. Therefore, you should ensure that there is always sufficient balance in your bank account on SIP dates.

 

Conclusion
In this post, we discussed why ELSS investments through SIPs is one of the best tax saving investments. It not only helps you save taxes, but also creates wealth for investors with high risk appetite. ELSS is also the most liquid and convenient investment options under Section 80C considering the SIP route. Investors should consult with their financial advisors if ELSS schemes are suitable for their tax saving purposes.

 

Source: Edelweiss

All you need to know about SIP top-up facility

Many investors top up SIPs in line with the respective increase in yearly income.

 

What does an SIP top-up facility mean?
SIP top-up is a facility wherein an investor who has enrolled for SIP has an option to increase the amount of her/his SIP instalment by a fixed amount or percentage at predefined intervals. This increase can be linked to future income and growth.

 

What is the difference between conventional sip and sip top-up?
In a normal or conventional SIP, investors cannot increase their contribution during their SIP tenure. If they want to increase it, they have to start a fresh SIP or make lump sum investments. Step-up SIPs allow investors to automate their SIP contribution and increase in line with their expected growth of income.

 

How does it work?
Using a top-up facility, an investor can increase monthly contribution in an ongoing SIP. For instance, if you invest `10,000 every month in an SIP and wish to add `1,000 every month, at the end of each fiscal/calendar year or financial year or every six months, you can use the top-up facility.

 

While some fund houses call it top-up, some others call it SIP Booster or SIP step-up facility. Most prominent fund houses offer this facility to investors.

 

Why do financial planners recommend a sip top-up?
Many retail investors run SIPs to meet their long-term financial goals such as buying a house, children’s education and marriage or retirement.

 

Financial planners suggest investors should opt for a top-up facility, as it automatically accounts for inflation and takes care of an increase in income like an annual salary hike. Most salaried individuals get an annual hike and hence they suggest investors could top up their SIPs annually. With the top-up facility, this is taken care of.

 

What challenge does a top-up face?
The basis of a top-up SIP assumes an investor’s income would increase year on year. There can be instances where expenses will rise and income fails to keep pace, or there is a job loss as we have seen in this pandemic, which make it difficult for an investor to top up.

 

Source: Economictimes

Market Crash: Should you stop your SIP?

For novice retail investors, witnessing erosion in the capital invested is hard to tolerate and instead of withstanding the market turmoil and waiting to see the notional loss turning into gain on market recovery, many investors having low risk tolerance either redeem their investments or stop their investments through systematic investment plan (SIP).

 

But is it a right decision to stop investing or redeem existing investments in low market to stop further loss?

 

To understand the implications of discontinuing SIP or redeeming your investments when the markets are down, you should compare the equity investment with investments in physical assets like gold.

 

If you sell gold at Rs 30,000 per 10 gram that you bought when the price was Rs 35,000 per 10 gram, you will lose Rs 5,000. But if you wait till gold prices increase to Rs 40,000, you would gain Rs 5,000 by selling it at high prices. Moreover, instead of selling gold at Rs 30,000 per 10 gram, if you buy another 10 gram and then sell the 20 gram gold at Rs 40,000 per 10 gram, you would gain Rs 15,000.

 

So, when the price of equity falls, you should invest more instead of redeeming your investments, because redemption in low market would turn the notional loss in real loss.

 

Similarly, you shouldn’t stop your SIP in low market. It is because, under SIP, same amount is invested in equal interval and when NAV of funds are lower at low market, you would get more units. As fund is denoted by the product of NAV and number of units (i.e. NAV x No. of units), higher the number of units you accumulate, the higher will be the fund value when NAV moves up in high market.

 

So, to get a higher return from your investments in equity MF, you should never stop your SIP at low market and if possible, make some additional investment to acquire more units to maximise the return.

 

Source: financialexpress

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