Investments are a great way to grow your earnings and acquire significant ROI. It is always better to start your investment journey at a young age. However, young individuals have a number of things to tackle, such as work, career, personal life and much more. Therefore, they require mutual investment plans that are simple, organised and easy to tackle. This is where SIP or Systematic Investment Plans come into play. This article overviews 10 reasons why SIP is perfect for young individuals aiming to invest.
Why SIP Investments are Perfect for Investors
A Systematic Investment Plan (SIP) in mutual funds has its benefits for the investors. Here are reasons why SIP investments are considered perfect for investors:
Starting Early Offers More Returns
Starting early helps you get the advantage of compounding. It is earned on the availed interest and the principal amount. For instance, if you invest ₹100, then based on 10% compound interest, your earnings will be ₹10. For the second year, this 10% interest will be calculated on ₹110, i.e. 100 +10 and so on. Moreover, starting early gives you the option to experiment and take risks. This is because most equity instruments stabilise in the long term and offer better returns.
Disciplined Savings
The development of a disciplined savings habit is one of the main benefits of SIPs. Young investors can establish a saving and investing pattern by committing to invest a set amount each month. With this methodical technique, a sizable corpus can be gradually built without requiring substantial upfront investments.
Low Entry Investment
Many people shy away from investment, thinking that they need a huge upfront amount. But that is not true. For young investors who are at the beginning of their professional careers, SIP is a great option because you can start investing with an amount as low as ₹500 and a demat account. It removes the need to have steady or disposable income, which most young individuals lack.
Facilitates Diversification
You may reap the rewards of diversity without having to deal with the headaches of handling numerous separate investments on your own by using a mutual fund SIP. Your contribution is invested in a diverse portfolio of assets selected by knowledgeable fund managers.
Flexibility
SIPs provide a great deal of flexibility with regard to the duration and amount of investments. It is accessible to individuals who are just starting their professions because young investors can start with a small sum. Furthermore, SIPs allow for flexibility in adjusting investments when income grows or financial responsibilities change based on individual financial circumstances.
Convenience
Putting money into SIPs is quite handy. The majority of financial institutions provide easily set up and manageable online platforms for SIPs. For tech-savvy young investors who prefer digital money management, this convenience is especially alluring. Without requiring human participation, automatic withdrawals from bank accounts guarantee that investments are made on a regular basis. Moreover, there are online tools like a SIP calculator that you can use to calculate your returns and how much you need to invest.
Rupee Cost Averaging
It makes sense that you would want to purchase at the lowest feasible price and sell at the highest possible price. Timing the market is a challenge, though, as it is exceedingly hard to forecast when prices are going to increase or drop. SIPs for mutual funds remove the need to use rupee cost averaging to time the market. With SIP, you can invest in mutual funds at various times, irrespective of market fluctuations, and without being influenced by your feelings.
Tax Benefits
Under Section 80C of the Income Tax Act, certain SIP investments provide tax advantages. SIPs are a tax-efficient investment choice for young investors because they allow them to save for the future while also lowering their tax obligations.
Professional Management
Professional fund managers oversee mutual funds and possess the knowledge and experience necessary to make wise investment choices. Without having to devote a lot of time and energy, young investors can profit from this professional management.
Goal-Based Investing
SIPs work well with goal-based investing, which is a tactic that young investors can employ to achieve certain financial goals like home ownership, college funding, or wedding preparation. Through the tying of SIPs to particular objectives, investors can methodically strive towards reaching these benchmarks.
Conclusion
SIPs are a great investing option for young investors because of their many advantages, minimal entry barriers, and flexibility. Young investors can take advantage of rupee cost averaging, leverage the power of compounding, and develop a disciplined savings habit by starting early. For those wishing to safeguard their financial future with the least amount of risk, SIPs are an appealing choice due to their expert management and ease of use.
