Should you consider the long term horizon, equity investments outperform most of their counterparts by a handsome margin. They are your best bet to build a solid corpus. Yet, the short-term volatility is something that might churn your stomach. Not to forget the inherent risks involved in dealing with equity.
A simple solution is to invest in SIP. A systematic investment plan ensures that you benefit from rupee cost averaging. Thereby keeping you at bay from swings in the capital market. By investing in a SIP, you can reap the benefits of the capital market without having to worry about the pitfalls that it comes with. Since most of the funds are handled by experts, you no longer have to worry about the structure or tracking the market on a regular basis.
We recommend you to increase your SIP by 10-15% on a yearly basis, keeping in line your salary increment at the beginning of the year. Here are the three major reasons why you should do that favour to your portfolio.
1. Make the most of tax efficiency of mutual funds
You invest your hard-earned money in some investment avenues and end up paying taxes as per your income tax slabs. An investment that earns you 25% returns and you end up paying 20% of it as taxes, it doesn’t really bring a lot to the table.
Investment in equity mutual fund is much more rewarding in such scenarios. Your gains from an equity mutual fund are taxed at only 10% if the amount exceeds the cap of INR 1,00,000. This is irrespective of which tax slab you belong to.
If you aren’t too keen on investing in the slightly higher risk-rewarding equity funds, debt funds are always there. Unlike their alternatives, FDs, debt funds bring in the concept of indexation. With indexation, your overall tax liability reduces thereby you do not have to worry about feeding the taxman.
2. Reach your goals faster
One of the most prominent reasons to increase your SIP amount is to reach your goals a tad faster. When you set up an automated SIP, you can consider it as a positive EMI. One that does a world of good to your finances rather than regular EMIs.
By increasing your SIP amount on a yearly basis, you will be able to save for a vacation or buy a new car a few months ahead of your initial plan.
If you have plans of taking a sabbatical, increasing the SIP is just what you need. Once you cut down on your expenses, it is only natural that your money will last longer and you will be able to create a much larger savings pool.
When you get into a habit of investing regularly, unknowingly you can handle the volatility in the market. When the market is high, you might get slightly lesser units. On the other hand, when the market is up, the additional units are all yours.
3. Early Retirement
How many of us think or plan for early retirement? Well, a substantial number of people do. But do we take any significant steps towards the same? Increasing your SIP will help you do just the same. On increasing the SIP amount on a yearly basis, you are putting your best foot forward to handle and tackle the beast called inflation.
And do not worry about the short-term fluctuations. As far as early retirement is concerned, you are in it for the long haul. A SIP of as small as INR 1,000 per month can lead to a corpus amount of INR 7,57,703 in about 15 years. This comes from a total investment of merely INR 1,80,000. That is the power of compounding over a period of time.
You can choose the SIP amount and aim to reach your retirement early. So that you can focus on things you always wanted to. For instance, you can start your work on the start-up plan that you always had, pursue any dreams that you had or do philanthropy, there are numerous opportunities.
Individuals who seek to build a financial buffer for their future, increasing your SIP in 2019 is a right step in the same direction.