Are you scared of investing in the stock market? Do investment terms and concepts sound like Greek & Latin? You’re not alone. Many people put off investing in the stock market because they think it is a gamble. They’re afraid of losing their hard earned money and for good reason. The truth, though, is that if you want to become wealthy in the long run, investing in the stock market is one of your best options. With Systematic Investment Plans (SIPs), investing in the stock market becomes easier and safer. All you need to do is pick the mutual funds aligned with your financial goals and you are ready to start investing.
Here are 9 reasons why you should invest through an SIP:
#1. SIPs help you finance future dreams
The investments we make are ultimately for some objectives such as to buy a house, children’s education, marriage etc. and most of them require a huge one-time investment. Since it is difficult to raise such large amounts at a short notice, one needs to build up a corpus over a longer period of time, through small but regular investments. With small investments through an SIP, you can accumulate wealth in the long term to fulfill your dreams.
#2. SIPs minimize your exposure to stock market volatility
Since every month you invest a fixed amount into the stock market, you ride through stock market highs and lows. In months when the stock market rises, your investment buys fewer shares and when the stock market dips, you buy more shares. In the long run, this gets averaged out.
#3. SIPs help you become disciplined with savings
The best part of investing in SIPs is that you become disciplined with saving. Since this is a fixed monthly amount, you start building a habit of saving and investing surplus amounts.
#4. Gain wealth with the power of compounding
With SIPs, your investment generates higher rates of interest as you are invested for a longer time. Compounding is one of the most powerful tools in your financial arsenal.
#5. SIPs help you save more on your Income Tax
If you want to save tax, there’s good news for you. You can avail a tax benefit of up to Rs. 150,000 under section 80C by investing in an ELSS (Equity Linked saving Scheme). Investing in an SIP-ELSS has the shortest lock-in period when compared to other tax-saving instruments.
#6. Pay ZERO Capital Gains Tax
Capital Gains Tax is the tax on selling assets such as stocks and property. When you invest in an SIP, you have to pay 0% tax if you have held that SIP for more than 12 months. If you are selling within 12 months, then the short term capital gains are taxed at 15%.
#7. SIPs are perfect for young investors
With SIPs, the earlier you invest the better it is. Even if it is Rs. 1000 this month, investing today helps your investment grow with time. This is the biggest benefit of investing in an SIP. Investing in SIP at an early age makes your investments earn faster and become bigger as you grow.
#8. You earn from different industries at different times
Another advantage of investing through an SIP in Mutual Funds is that even with small amounts one can enjoy the benefits of diversification. This ensures your risk is spread out as well as helping you gain from industries that are performing well.
#9. The Government protects investors in mutual funds
The Mutual Fund industry is well regulated by both SEBI and AMFI. This ensures there is a platform that protects the common man’s interests.