Investments have always been deemed as risky by those who do not fully understand the benefits of it. With the aim to remove the stigma around it, SIP has become quite a hit among the people. As an employee, there are many reasons to choose SIPs over PFs and other investment plans. Here are few advantages you should check out.
Entering the world of investment is easier said than done. Before you get into the habit of making a regular investment or even looking forward to getting gains, you should choose the kind of investment you want and what suits you best. These days, even offices are looking to convince their employees to invest their money every month in SIPs rather than PF, PPF and more.
SIP or Systematic Investment Plan is mutual fund plan where you can invest a particular amount every month in predetermined investments or mutual funds. This is a great way to venture into the world of equity mutual funds without having to worry about investing too much in the wrong stock. Apart from this, SIP comes with a lot of advantages for you as an employee:
Many of the top SIP plans you can find are quite flexible. When you invest in SIP, you are essentially putting the money in an open-ended mutual or debt fund. This means that you can invest in it anytime they like, and in the case of emergencies, you can withdraw the accumulated amount anytime you like as well.
Apart from this, you even have the option of withdrawing the full or the partial amount, and you can increase or decrease the amount you want to invest easily.
- Long vs. short term
Another reason why SIPs are great is that it offers you the choice of investing long term or short term. When you invest in a PF or a PPF because it is a mandate in your company, the tenure is normally for a long term investment. Yes, a long term investment is ideal in SIP as well if you are looking to accumulate benefits, but you surely have the option to go over the pros and cons and decide.
- Better wealth accumulation
When compared to PFs that are normally favored by employees everywhere, the opportunity for wealth accumulation is a lot higher with SIPs. With investments in different funds and units, you gain a lot more when the prices go up. With a long-term investment, your interest and money increase in pace because of something called a ‘compounding effect.’
This is commonly known as ‘rupee cost averaging.’
Another reason why SIP is great is that it does not require as much money as a PF. You can decide on a small sum of money to be auto debited from your account every month from the bank after you get your salary. This helps you save up for the future and cancels out the hassle of forgetting to invest in a particular month as well.
- Tax benefits
One of the biggest tax benefits with SIPs is that the capital gains are not taxed which leaves the investor with the entire amount to do what he pleases. However, it is important to remember that this is applicable only to long-term capital gains. Short term gains have a 15% tax that needs to be paid when you are withdrawing the money.
These are some of the advantages that you should be aware of as a working professional when you are looking to invest in SIPs. With more flexibility and shorter financial needs, SIPs are a great way to enter the investment market.