How should an employee plan their SIP investments?

How should an employee plan their SIP investments?

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Financial planning is an important part of any employee’s life; after all, you want to save for your future, maintain financial well-being, and grow your wealth over time. Systematic investment plans, or SIPs, are a great way to do this. They offer a cost-effective way to invest in mutual funds regularly, can be easily set up, are automated, and require minimum commitment in terms of time or money. As an employee, you can take advantage of your current salary income and convert it into investments that will benefit you in the long run.

With regular contributions to mutual funds investment plans, SIPs help to reduce market timing risk, which is helpful during volatile stock markets. Moreover, an SIP enables you to take advantage of the rupee cost averaging approach, where you purchase more units when prices are low and fewer units when prices are high, thus reducing your average cost per unit over time.

Given its many benefits, how should you, as an employee, plan SIP investments more efficiently? Let’s find out.

Step 1: Set your SIP date

The first step is to set your SIP date, which should be close to your payday. This way, you can maintain financial discipline by ensuring that you have enough money in your account when the payment is due. Furthermore, using a mutual funds SIP calculator can be beneficial as this allows you to calculate your estimated returns and budget your investments accordingly. This helps create a roadmap for successful, strategic investing with a higher potential for returns.

Step 2: Enable auto-pay feature

Once you have selected the date of payment, it’s important to enable the auto-pay feature so that you don’t miss any payments due to busy schedules. With this feature, payments for your SIP mutual fund are made automatically from your bank account every month on the selected date without any manual intervention from your side. This ensures regularity with no possibility of forgetting or missing payments, which can lead to the discontinuation of investments or penalties (if applicable) imposed by banks or mutual fund houses.

Step 3: Have a long-term vision

If you are interested in investing with a long-term view, then large cap mutual funds might be ideal for you. These funds generally invest their corpus into companies with large market capitalisation, which minimise risks involved while providing decent returns over time due to their inherent stability during market fluctuations.

Investing in such schemes provides a great opportunity to diversify your portfolio while achieving optimum returns on investments over medium- to long-term if planned accordingly.

Step 4: Opt for tax saving schemes under mutual funds

If you pay income tax, then it makes sense to opt for tax saving mutual funds such as ELSS (equity-linked savings schemes) as these can provide deductions of up to

ELSS investments also have a lower lock-in period (3 years) compared to other tax saving investments under 80C, such as Public Provident Fund (PPF), giving investors more flexibility when it comes time to liquidating their investments.

Final words

Besides these strategies, you as an employee should take additional points into consideration while planning to invest in SIP plans, including your investment goals, risk capacity, tenure, amount, returns, and, most importantly, interaction with a financial planner. With the help of a financial planner, you can map out your goals and invest accordingly to achieve those targets.

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