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Mutual Funds - Why investing via SIP works best for salaried people

12 Jan 2021

For long-term goals, opt for large-cap equity schemes which give higher return when invested for a longer period of time.

As a salaried person enjoys a fixed amount of monthly pay-out, investing in mutual funds through Systematic Investment Plan (SIP) is a better option than by investing a lump sum. Investing through SIP is a disciplined process that automatically deducts the amount from the account on a particular date.

For achieving long-term goals, equity funds are best as they invest in top 100 companies having large market capitalisation, sound financial record, good corporate governance, and which will be stable in the long term. For medium term goals, debt/ hybrid funds are better as they invest in fixed income earning instruments which give less return than equity funds as they do not carry risk as much as equity does. For short-term goals, investing in liquid or low duration funds is a better option.

SIPs for salaried
Salaried persons should fix the SIP date nearing the date of salary credited to their account so that they can save before spending money. If he is paying income tax, he should go for tax saving schemes (ELSS ) offered by mutual funds where deduction of up to Rs 1.5 lakh can be claimed under Section 80C. For long-term goals, they can opt for large cap schemes which give higher return when invested for a longer period of time.

Women often complain about managing job and families and do not have much time to study markets to invest at the correct time. The best option for women is to invest through SIP where a fixed amount is invested at a regular interval of time.

A young earner who just started earning will have a longer tenure to reach his goals and can take advantage of compounding. An early start will give higher return even starting with a smaller amount as the compounding effect can only be seen in the long run. As a young earner does not have much family responsibilities, he will have the capacity to take risks. He should start investing in the equity funds through SIP which can help him to create a bigger corpus in the long-run. In fact, SIPs are best suited in the long run as it can be started at a minimum amount of `500. With an increase in the income, the SIP amount can also be increased gradually.

Source: Financial Express BACK