Investing in mutual funds through Systematic Investment Plans (SIPs) offers numerous benefits, attracting investors for its convenience, affordability, risk mitigation, and long-term wealth creation potential. The Association of Mutual Funds in India reported a significant rise in SIP accounts to 8.2 crore by February 2024, with investments nearly doubling from Rs 92,693 crore in FY 2018-19 to Rs 1,79,948 crore in FY 23-24.

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SIPs are an increasingly popular investment vehicle for mutual funds, making financial market investments accessible even to laypersons. As FY 2024-25 approaches, here are some compelling reasons why you should consider adding SIP investments to your financial plan:

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1) Simplicity: Lack of financial expertise, along with the risk of volatility, are among the biggest deterrents to financial market investments. Mutual funds, however, aim to open the market to novice investors by giving them access to a diversified and professionally managed portfolio at an affordable amount. SIPs further add to this ease of investment. The minimum instalment amount ranges from Rs 100 to Rs 500 in many schemes. The process is streamlined – after a one-time application, the predetermined amount is debited from the investor’s bank account, offering flexibility to invest for a fixed duration or until specific financial goals are achieved. Moreover, investors have the option to pause or adjust their SIP amount as needed.

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2) Encourage discipline: SIPs cultivate a habit of regular saving by automating investments, encouraging investors to set aside money consistently. Even small, regular investments have the potential to generate inflation-beating returns and build wealth. When planning your investments, you can use the SIP calculator on our website to estimate the potential size of your corpus based on your instalment size, expected returns and investment horizon.

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3) Diversification benefit: SIPs enable investors to achieve portfolio diversification, crucial for risk mitigation and managing market volatility. Even with modest contributions, investors gain access to professionally managed portfolios spanning various asset classes, reducing the impact of individual asset performance on overall returns. Consulting a financial expert can help choose suitable schemes aligning with investment horizon and risk appetite.

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4) Volatility management: One of the key risk mitigation strategies of SIP investments is rupee cost averaging. A fixed amount of money is regularly invested, regardless of market conditions. As a result, investors buy more mutual fund units when the Net Asset Value (NAV) is low and fewer units when it is high. Over time, this reduces the average per-unit cost of your investment, thereby increasing potential gains. Moreover, it helps leverage volatility by purchasing more units when prices are low and fewer when the market is on a high, without investors needing to independently time the market.

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5) Compounding benefits: Mutual fund returns compound over time, generating further returns on reinvested gains.

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6) Tax benefits: SIPs in Equity Linked Savings Schemes (ELSS) offer tax benefits under Section 80C of the Income Tax Act. Investors can claim deductions for investments up to Rs. 1.5 lakh, subject to a three-year lock-in period. This tax advantage makes ELSS an attractive investment avenue, only for those under the old tax regime.

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In conclusion, SIP investments offer a simple, disciplined, and diversified approach to wealth accumulation, with the potential for long-term growth and tax advantages. However, investors should remain aware of market risks and seek professional advice to align their investment strategies with their financial goals and risk tolerance.

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