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SIP –Proxy to Equity Investing?

27 Aug 2014 |By: Team Finalaya

Systematic Investment Plan

Have you ever wondered how  few people make huge money by investing in stock markets? Don’t you feel tempted to go their way but fear of losing your hard earned money prevent you from doing that? Is there a safer way where you can generate returns corresponding to equity markets but risk is relatively lower?

If you plan properly you can achieve a healthy return while keeping the risk level relatively lower. People who are engaged in a tiring job or business don’t have much time to analyze the equity market movements themselves. Equities are without doubt the best investment options for good return over a longer time horizon.

Mutual Funds is the answer for such class of investors. Mutual funds are professionally managed investment vehicle wherein the investments of individual investors are clubbed and invested in equity markets. Investors can choose SIP i.e. Systematic Investment Plan for investing periodically rather than investing all money at once.

What is SIP?

SIP or Systematic Investment Plan is to invest money in regular intervals on a specified date (weekly, monthly or quarterly) in a mutual fund of investor’s choice. The amount can be as low as Rs 100 per month. It is among the best hassle free long term tools that provides you flexibility and convenience to save money as well as opportunities to generate better returns in comparison to debt securities.

How does it work?

SIP is the easiest and cost effective way of planned investment. Firstly, choose a fund of your choice. You may take the help of fund screeners available on various websites to select a good fund. Thereafter, you can instruct your adviser or banker to buy the units equivalent to a fixed amount each month. One can opt for post-dated cheques or Auto Debit from bank account to avoid the trouble of missing the date to make further investments. The amount invested will give you the number of units that can be purchased in that amount.

Suppose, a person invested Rs 1000 on January 2010 and got 100 units of Axis Equity Fund.

Consequently, the total number of the units that stands with the investor after 5 months of investment is 494.60 by investing Rs 5000 in 5 months. The worth of your investment is now Rs 5124.06 (holding ROI 2.48%).

Similarly if the same amount was invested for 5 years from Jan 2010 to Jan 2014 in Axis Equity Fund

Total Investment: 49000

Total Units: 4430.48

Value of Investment on Jan 5, 2014: Rs 59988.82

Return Percentage: 22.42%

SIP Investments

Tax Benefits

A SIP in ELSS is tax free under section 80 (C). As your SIP is an equity oriented fund, if the money is held for more than a year, the gains arising out of sale will be tax free as it will be treated as long term capital gain. However, if the investor withdraws the investment within one year then 15% tax will be charged on the gains as it will fall in short terms gains category.

For the busy men or those people who are watching Sensex/Nifty grow day by day from sidelines, SIP can offer them an easy way of participating in equity markets wherein their money will be invested in a good portfolio of stocks by competent professionals. On top of it SIP creates a healthy practice of saving money on regular intervals.

Go and have your SIP!

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SIP –Proxy to Equity Investing?

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