5 Questions A First-Time Investor Asks About SIP Investments

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Mutual funds are an excellent place to begin your financial adventure. You can invest in a single sum or set up a Systematic Investment Plan (SIP) to regularly invest a little amount of money. SIPs are the greatest alternative for novices or first-time investors since they allow you to generate significant returns while reducing your investment risk. Depending on your financial goals and income, you can invest a certain amount every week, month, or half-yearly for a set period.

First-time investors are generally hesitant to put a substantial quantity of money in mutual funds. However, SIPs do not require a high investment amount. SIPs allow you to invest in mutual funds with as little as Rs 500.

Why should you invest in SIPs?

It instils financial discipline in your life, for starters. Two, it allows you to invest regularly without worrying about market conditions, index levels, and so on. For instance, if you are required to invest a set amount each month in a mutual fund plan, you must schedule a time to do so. You may be concerned about market circumstances and consider deferring your investing till you have the time. If you’re feeling upbeat, you could consider increasing your investment. All of these issues are resolved using SIP. Without any effort on your side, the money is automatically invested in a program every month.

How can you beat inflation with SIP investments

One of the golden laws of investment is to account for inflation when purchasing.

You must consider current and potential inflation while selecting a SIP. You may be investing today, but your future objectives may alter, necessitating a larger sum of money to meet your demands.

People frequently lose money despite several investments because they overlook inflation, which diminishes their returns on investment. Setting a corpus aim for your financial goals while considering projected inflation throughout the investing period and determining the SIP amount accordingly is recommended.

How do we minimise risk when it comes to SIPs? Diversifying your investments is a wise investing strategy. As previously said, you must invest according to your risk appetite and return expectations. Age, financial obligations, investment tenure, liability, income, and other factors impact an investor’s risk appetite. Diversification can aid in risk reduction. Diversify your investments by investing in various schemes, asset classes, and mutual fund firms.

To secure the desired level of return, it’s also critical to maintain the proper amount of diversity. Over-diversity can lower your return on investment, while insufficient diversification might put you in danger.

How often should you keep track of your SIPs? Investing does not imply putting money into a product and then forgetting about it. You should monitor your investment performance frequently.

Your investment may not always perform as predicted. It might result from poor fund selection or a poor market environment. Suppose you monitor the performance of your funds regularly. In that case, you may take steps to guarantee that your investment continues to create the promised returns, allowing you to meet your financial objectives on time. You can get rid of the underperformer and replace it with a fund that has a greater return potential and fits your risk tolerance. A SIP allows you to profit from rupee cost averaging in the long run.

How to calculate tax on SIPs? The tax consequences of redeeming units obtained through a SIP are more complex. Consider the following illustration. A monthly SIP is used to invest in an equity fund for 12 months. If you elect to redeem your units after 15 months, the units purchased through the first three SIPs will yield long-term capital gains because their holding duration is longer than 12 months.

Long-term capital gains of up to Rs 1 lakh per year are free from taxation. Any long-term profits over this amount are subject to a 10% long-term capital gains tax, with no indexation.

Bottom Line Invest regularly and patiently, according to tight financial discipline. After attaining one financial objective, you can terminate a SIP and redirect the funds to a new SIP for a different goal while keeping your risk appetite and return objectives in mind.

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