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Not everyone can spare a huge sum to invest in a mutual fund or any other scheme in one go. This is particularly true for those who have just started earning. For them, it is better to invest in smaller amounts regularly and systematically i.e. small SIPs. In this article, we will discuss why it is important to start small SIP if one-time investment is not possible.
An SIP lets you save a certain sum regularly, and this sum can be as small as Rs. 500 per month. So, you do not need to have large disposable income, just need to be consistent to accumulate wealth and inculcate financial discipline. This will help you overcome temptation (to spend all at once) and make logical and systematic financial decisions. Indeed, small SIPs are better than no investments.
Systematic Investment Plans – be it monthly, quarterly or semi-annually – will also prevent you from catching the market volatility and getting burned. A pre-agreed sum you can comfortably shell out per month can save you taxes as well as grow wealth without the need for market timing. Going for Cleartax Invest SIP will serve your purpose as we present you handpicked funds from top Indian fund houses.
Yes, you can customize your SIP. In fact, you can start with an amount as small as Rs. 500 (Rs. 6000 per year). Did you know you can even start a fortnightly, weekly or even daily SIPs? This is how customization works and you can use this to your advantage.
Many AMCs allow this to make it easier and convenient for their customers. Aside from this, there are also step-up SIPs that let you increase your SIP contribution. For instance, if you invest Rs. 5000 per month, you can increase the amount by 10% or 20% in the following year. This combined with the power of compounding will build your savings at a faster pace. In the recent years, SIPs have been generating 15% to 18% returns.
Saving an amount habitually imparts staunch financial discipline. You will get into the habit of investing regularly and it will be easier to fight the temptation to spend all your salary.
You do not have to constantly keep an eye on the market rise and falls. Investing lumpsum require you to assess the market movements and it can cause you to delay your investment decisions.
If you set the amount to be auto-debited on your salary date, it will be easier for you to plan your monthly budget. You do not need to put any additional effort.
It averages out the expense ratio (mutual fund costs), which translates to more returns. This is because when you invest habitually over a term regardless of the market mood, you can own more units when the market is down.
As mentioned above, power of compounding works here more. Starting small can be advantageous because it creates wealth faster and steadily.
Small SIPs offer you more flexibility. As you go up the career ladder, you can even increase the monthly SIP amount accordingly. It is less stressful to invest small but manageable sum.
Investing in ELSS through SIP is non-taxable upto Rs. 1.5 lakhs per financial year as per Section 80C of the Indian Income Tax Act.
Now diversification and periodical payments can save you from heavy losses. However, averaging your cost of investments and reducing the impact of market falls, also averages returns during market highs. This is the only disadvantage. But don’t let this deter you because the benefits far outweigh the cons.