Why Choosing the Right Investment for Your SIP Is Essential?

 The SIP (Systematic Investment Plan) is a way to invest in mutual funds. The amount you invest in the SIP is automatically debited from your bank account and invested in the selected mutual fund scheme.

 

The great thing about SIPs is that they're mathematically guaranteed to help you grow your money. If you invest Rs 1 lakh every month for 20 years at a 10% return per annum and then stop investing, you will have invested Rs 27.4 lakh over two decades. That's not too shabby!

 

But here's the catch: if you pick the wrong investment for your SIP, it could cost you more than expected. Here are some ways in which choosing the right investment for your SIP can make all the difference:

 

Here Are Some of the Top reasons why choosing the right investment for your SIP is essential:

 

Reduced Risk

The first reason selecting an apt investment for your SIP is crucial is that it reduces risk. One way to minimize the risk in an investment portfolio is by diversifying assets across different asset classes and industries. Another way is by avoiding certain asset classes or industries altogether because they are too risky or volatile.

 

This may sound counterintuitive at first, but it can increase returns over time due to its low correlation with other investments if you use this strategy correctly. In addition, reducing risk also means that you will have better returns when markets are down because your assets have not depreciated much yet.

 

It Ensures Safety of Capital

Investments are risky by nature, and there is no guarantee that they will always give good returns. However, suppose you invest in a fund with consistent returns over time. In that case, it is less likely to lose value due to market volatility or unexpected economic events like recessionary phases or financial crises, etc.

 

You Can Easily Track Your Progress

One of the most significant advantages of investing in a good fund is that it helps you easily track your progress towards achieving your financial goals.

 

For example, if your goal is to save money for retirement and you have been investing in a mutual fund for say five years, you can quickly see how much money has been invested so far, what amount has been added on and how much has been earned as well.

 

This helps keep track of how much progress has been made so far, which can be helpful when making decisions about whether to continue investing or stop altogether.

 

You Can't Afford toLose money

Suppose you don't have a lot of money to invest. In that case, it's best if you invest in an ultra-short-term fund instead of going for an equity fund or debt fund, as it may lead to losses if there is any market volatility during a particular period. If you don't have enough money to take care of your other financial obligations, it would be prudent not to invest in any instrument that will cause losses.

 

Increased Returns

Another reason why choosing a suitable investment for your SIP is indispensable is because it increases returns over time due to its low correlation with other investments. In addition, reducing risk also means that you will have better returns when markets are down because your assets have not depreciated much yet.

 

You Need More Stability

If you don't want too much risk but still want some profits, then investing in government bonds is not bad since they are considered safe investments with little risk involved. These bonds generally mature after ten years, depending on their maturity date and interest rates, and the returns are predictable and stable.

 

Ability to Invest More Regularly

SIPs are an excellent way to ensure that your investments grow over time without interruptions if you have a fixed income, such as a monthly salary. There will be no temptation to withdraw money from your investments because of an emergency or other financial commitments. You will also not need to worry about choosing the right moment to invest – whether during a market dip or peak – because all you need to do is set up a recurring deposit and leave it alone!

 

Tax efficient Growth

When you invest through a SIP, the growth of your investments is tax efficient. This means that youmust pay nominal taxes on the gains made by your fund. This is unlike if you had invested in the traditional investment products where all profits made by you would be taxed as per your income tax slab.

 

So by choosing a fund that gives you good returns and is also tax-efficient, you can save yourself from a lot of future hassles with the Income Tax department. It is best to consult a specialist for efficient tax planning for your investment.

 

Peace of Mind

Investing in a SIP gives you peace of mind because it involves regular investing over some time instead of trying to time markets and invest only when things are going well. You will also find that there is no need to constantly monitor your investments as they grow over time through regular contributions and dividends paid out by mutual funds. This makes it easier for investors who don't have enough time.

 

Final Thoughts

Simplifysors is here to help you out with online mutual fund investment. We provide all the information you need when investing in mutual funds – whether you're looking for a new investment or just want to invest more money into your existing portfolio we are just a tap away. Get in touch with us today!