SIP: Due to the record boom in the stock market, the trend of people has become increasingly attracted towards investing in equities. However, due to market volatility, some investors prefer to invest in mutual funds. In this too, the return on investment is market linked but is safer than direct investment in equities. Systematic Investment Plan (SIP) is the safest and best way to invest in mutual funds. One can invest in this in two ways- lump sum or at a regular interval.
Investing in SIP is beneficial for long term. It can be understood that in ICICI Prudential Technology Fund-Direct Plan-Growth, investors have got a return of 25.76 per cent in three years while 32.6 per cent in five years. Talking about SIP debt fund, DSP Government Securities Fund-Direct Plan-Growth has given returns of 9.99 per cent in 3 years while 11.85 per cent for investors over a period of five years.
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The right strategy to invest in SIP
- Set Goal: Before you start investing in SIP, set a goal for yourself. After this choose the best SIP plan based on your goal and your risk taking ability. You can also use online SIP calculator for this.
- Lump sum or SIP: There are two ways of investing in mutual funds – lump sum or at regular intervals. The volatility of the market makes a lot of difference on lump sum investment but if you are investing at regular intervals then the volatility will not make much difference. This is because when the market is down, more fund units will be available whereas when the market is top, less units will be available but in the long run its average gets better.
- Set duration: Decide how long the SIP is to be done because the longer the SIP will be, the better the average of the unit fund price will be and the returns will be better. However, you should keep checking your profile from time to time.
Choose Long Term: The investment formula for SIP is 15*15*15. This means that if you deposit 15 thousand rupees every month for 15 years in a scheme giving annual return of 15 percent, then a fund of 1 crore will be ready on completion of the scheme. In such a situation, you can understand how much better long term investment is.
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- Calculate tax: How much the actual return will be, depends on how much tax has to be paid on it. Short-term capital gains of 15 per cent on redeeming equity funds within a year and 10 per cent on gains above Rs 1 lakh per annum after one year. Short-term capital gains on debt fund units redeemed within three years and redeemed thereafter will attract tax of 20 per cent along with indexation benefits. Equity fund taxation will be applicable if equity exposure exceeds 65 per cent, if mixed.
- Be aware of the scheme: The mutual fund scheme under which you are planning to do SIP, its target and risk level should be according to your profile. Apart from this, check his past performance, also check the expense ratio and financial ratio. Expense ratio should be minimum.