5 Ways to Save and Manage Your Money with the Best SIP Plans

By Tori 5 years ago

Systematic Investment Plans (SIPs) in mutual funds are the most efficient and simple tool for wealth creation. It allows investors to follow the two key principles for wealth creation, consistency and discipline. Consistency is an important factor for wealth creation over a long period whereas, discipline helps to make rational and informed decisions.

SIPs are not just an investment tool. It is a way to save and manage your money to meet your long term financial objectives. One of the main features that make it stand apart from the other investment options is its affordability. An individual can start his/her SIP investment with a minimum Rs. 500 a month without affecting the monthly budget of the household and is convenient too.

Here are the top five ways to save and manage your money with the best SIP plans:

Helps in Tax Saving

SIPs generally have a long duration investment period, which mostly ranges between 5-10 years. The long term capital gains (LTCG) of up to Rs. 1 lakh are tax-free on the hand of investor and any sum beyond that is taxed 10 per cent without the benefit of indexation.

However, the interest earned on any fixed deposit, whether it is for short term or long term is taxable for the same tax bracket in which the customer falls in.

Investing becomes more fun when you don’t have to pay taxes on capital gains, and with SIPs, it helps you with tax saving and wealth creation.

Build Your Strong Retirement Corpus with SIPs

There are multiple options available to investors to start with retirement planning such as the National Pension Scheme (NPS), Public Provident Fund (PPF), and other retirement and pension plans offered by different financial institutions.

But. all such plans have one or other limitations like lower interest rates which don’t factor in the future inflation rates, thus raising the risk of not meeting the desired retirement goals.

By investing in growth assets through SIPs, you can even beat the inflation rate by a comfortable margin and also create a strong retirement corpus.

For example: Investing Rs. 5000 per month for 30 years with an expected rate of return can fetch you Rs. 3.5 crore at the end of the investment period whereas, if you had invested the same amount in PPF for the same tenure, your maturity value of the investment would have been Rs. 80 lakh.

Therefore, when it comes to future planning, especially retirement planning, and when the chances of expenses are higher due to age-related complexities, it is better to build a powerful corpus with SIPs to lead a worry-free life.

SIPs Helps to Meet Long Term Financial Goals

Goal-based SIP investments help in meeting personal and specific goals like child education, buying a home, or arranging for wedding expenses. Decades-long uninterrupted SIPs helps to create large enough corpus with small monthly investments to meet your long term financial goals without much problem.

For example, a person with Rs. 50,000 monthly salary who invests Rs. 3,000 in an equity fund, which is just 6 per cent of his monthly income for 15 years, can earn between Rs. 15,00,000 to Rs. 20,00,000.

Investing 6 per cent of your monthly income into an equity mutual fund doesn’t even hamper your finances and in the long term, you will be impressed by the returns.

Increase in SIP Amount Helps to Save More

When your income level rises, you should accordingly allocate more to your monthly SIPs. A small 5 per cent yearly increase in SIP amount can yield a substantially higher corpus, and a 10 per cent yearly increase in SIP amount helps you get 45 per cent higher returns after 10 years.

Following are the three cases which will help you to easily understand how a small increase in SIP amounts can help you save more:

Case 1: An SIP of Rs. 5,000 with a CAGR of 12 per cent will grow to Rs. 11.2 lakh in 10 years.

Case 2: An SIP of Rs. 5000 with CAGR of 12 per cent and a yearly hike of 5 per cent in SIP will grow to Rs. 13.48 lakh in 10 years.

Case 3: An SIP of Rs. 5000 with CAGR of 12 per cent and a yearly hike of 10 per cent in SIP will grow to Rs. 16.37 lakh in 10 years.

Rising SIP amounts each year helps to counter inflation and also stay aligned with respect to your investment goals.

Systematic Withdrawal Plan (SWP)

SWP allows an investor to withdraw from his/her mutual fund scheme every month on a fixed date. The two main reasons why SWP works wonders at the end of the SIP investment term is because capital gains are not taxed on the withdrawn amount. And, the second reason is that the rest invested capital continues to enjoy gains from the market.

The SWP benefit is not offered on traditional investment options and the maturity amount has to be withdrawn all at once.

Conclusion

When it comes to saving and managing money, SIPs beat the traditional options of investments like PPF, FD, NSC in terms of both, returns and flexibility.

Returns from SIPs with long-investment tenures are always impressive and traditional investment options fail to beat that level. Moreover, the returns from traditional investment options don’t come tax-free which further lowers the return percentage. The five ways to save and manage your money with the best SIP plans as discussed above shows the real benefit on SIP investments. Additionally, the flexibility offered with SIP investments in terms of the systematic withdrawn plan (SWP) further helps you save and manage your money efficiently. To know more about the SIP plans, you can refer to the best SIP plans offered by Orowealth and avail maximum benefits from your investments.