What are SIPs, and Do They Add Value to Your Portfolio?

 To build a new habit, you must find a way to include it in your daily routine. Whether it is about eating healthy, exercising, or saving, this is the golden rule that can take you closer to your goals. When it comes to investing, there is nothing better than SIPs. 

So, what is a SIP, and how can it help you build a strong portfolio? Let us find the answers to this in this article.

What is a SIP?

Many individuals confuse SIPs for mutual funds. A Systematic Investment Plan (SIP) is simply a tool to invest regularly in mutual funds. When you invest in the SIP of your choice, a pre-decided amount gets deducted from your bank every month. Typically, SIPs invest your money in equity funds.

Apart from helping you develop financial discipline; a SIP also helps you invest in your desired mutual funds in a staggered manner. It is ideal for salaried individuals looking for a convenient option to invest in mutual funds and build a portfolio.

How Do SIPs Work?

Mutual funds are investment instruments that invest your money in securities like equities, debt, or bonds. Asset Management Companies (AMC) manage mutual funds that are structured to offer the best returns to investors. 

When you invest in them, you buy units of the mutual fund that equals the value of your investment. When you take the SIP route, you buy units every month. You can use a sip calculator mutual fund for more accurate investment information.

How Can a SIP Help Build a Strong Portfolio?

Several individuals may want to invest in mutual funds and accumulate wealth in the long run. However, they may not have the required capital to do a lump sum. For such individuals, SIPs are convenient as you can invest little amounts regularly and increase the value of your portfolio. Moreover, if you want to invest in multiple funds and benefit from different AMCs, SIPs are a better option as they are easier on the pocket.

Another big advantage of SIPs is that you can benefit from both bullish and bearish stock markets. If you were to invest a lump sum, you would have to time it to benefit from a falling market. Considering the volatile nature of the stock market, you can never be sure when is an appropriate time to invest.

However, SIPs allow you to buy more units when the market is down. It helps in averaging out your investment to ensure that you get optimum returns on your investment. When the market is bullish, the value of your portfolio increases, thereby enhancing the returns. Apart from this, you can also enjoy the power of compounding, which can exacerbate the value of your portfolio by manifolds in the long run.

If you are looking for a tax-saving option, SIPs can help you with that as well. ELSS mutual funds are schemes that give you tax deductions as per Section 80C of the Income Tax Act. You can invest in ELSS taking the SIP route to save tax and invest that money for the future.

You also get the flexibility to change your SIP anytime you wish to. If you receive a windfall or get an increment at work, you can increase the amount of your SIP and enhance your portfolio.

Finally, if you do not want to lock your money, you get that option too. With SIPs, you can withdraw your investment anytime you need the money. 

To Sum up

SIP investment is a commitment. If you struggle to maintain and sustain a saving discipline, this is the way forward for you. The host of benefits it offers the investors can help you fulfil your objectives in the long run. For more information or to invest in a SIP today, you can visit PGIM Mutual Fund.

ELSS investments- A brief guide

ELSS stands for equity linked savings scheme and it is one of the foremost investment options under which you can save taxes under Section 80C of the Income Tax Act. If you are wondering how to invest in ELSS, you should know that these schemes are quite similar to other open-ended funds in the equity space although they have lock-in periods of 3 years. However, the minimum amount for investment can be as low as Rs. 500 every month without any upper threshold or limit for investing. You can either invest via a lump sum amount or choose SIPs (systematic investment plans).

Keep in mind that each and every installment you make accordingly will have a lock-in period of 3 years. Along with long-term wealth generation, you can garner attractive returns that may surpass inflation as well. Investing through SIPs will help you benefit from rupee cost averaging along with compounding, enabling better protection against market volatility and long-term capital appreciation. Choose ELSS funds on the basis of several parameters like consistent performance in the long term, rate of returns (adjusted for risks), reputation of the mutual fund house/firm and the terms and conditions.

Why ELSS funds are beneficial for your portfolio

Now that you know what is ELSS and know more about investing in these schemes, there are various benefits in store.

·        Lower Lock-In Period- ELSS investments come with 3-year lock-in periods which are considerably lower in comparison to other tax-saving investments like tax-saver FDs which have 5-year lock-in periods, PPF which has a 15-year lock-in period and NSC which has a lock-in period of 6 years.

·        Tax Savings- ELSS tax saving mutual funds will help you save considerably on your tax outgo. Investments are eligible for deductions up to Rs. 1,50,000 under Section 80C. Tax efficiency makes these schemes great options for investments.

·        Building Wealth- ELSS schemes will help you get inflation-beating returns over the long haul, helping you amass wealth considerably over a span of 3-5 years or more.

·        Professional Management- Unlike many other investment options, ELSS schemes will be managed professionally by market experts. They will naturally aim at ensuring the highest possible gains/returns for their clients.

·        Flexible SIPs- For paying smaller amounts every month instead of a lump sum amount and benefiting from cost averaging and compounding alike, you can choose SIPs (systematic investment plans) for amounts as low as Rs. 500 a month.

Of course, you should take a closer look at the market performance of the ELSS scheme that you have chosen along with its returns (adjusted for risk) over a sustained time period. Make sure that you shortlist a reputed mutual fund house as well. These schemes will help you earn good returns while helping you save on taxes as well.

You can flexibly continue with the investment after 3 years or withdraw your money as per your convenience or needs. These are some of the reasons why you should choose to invest in ELSS plans.