Skip to main content

Start SIP for Long Term

 

The oldest man on earth, Yisrael Kristal, died recently at the age of 113 in Israel. The first thing that came to my mind when I read this news was how would I manage my finances if I lived till 100 years or more. It would be a challenge. World Bank data indicates that life expectancy has increased from 52 years in 1960 to 72 years in 2015. However, despite these statistics on improving life expectancy, there is not enough effort around creating adequate wealth and cash flows to allow us to enjoy this longer life span. 


To solve the wealth challenge, it is important for us to change the way we save. Firstly, financial savings in India are mostly invested in traditional, assured returns products. The drawback here is that, these investments may not help create wealth in the required proportion on account of falling interest rates. Secondly, savings in India are not bucketed according to goals but follow a single funnel approach where goals are met by drawing down from a single pool of investments as and when needed. Hence, retirement, being the last goal, is often left with the residual investment corpus as we draw down from the central pool for earlier goals. 


It is therefore imperative for savers to move from a central pool to a goal-based investment portfolio as well as have a judicious mix of market-linked products like mutual funds in their portfolio. One can start a mutual fund investment with as little as Rs 500 per month through a 'recurring deposit' like approach called a systematic investment plan or SIP


Let me illustrate this with the example of equity mutual fund investments as most Indians are missing out on this potentially remunerative asset class. While one can start an SIP with as little as Rs 500 per month, but for a moment, let's start with an SIP of Rs 10,000 per month in equity mutual funds. Assuming a compounding return of 12% per annum, this monthly investment would result in a corpus of Rs 1 crore after 20 years and Rs3.5 crore after 30 years, that too tax-free as per current tax laws in India. 


While these are standard SIPs, an even more interesting feature available in market is called the step-up or top-up SIP. Using this feature, instead of investing the same amount monthly across these periods, you can increase your SIP amount by a certain percentage or amount every year in line with the increase in your earnings. Let us assume you increase your above SIP amount of Rs10,000 per month by 10% every year. The revised corpus using step-up SIP at the same assumed compounding return of 12% per annum would be Rs1.58 crore after 20 years and Rs6 crore after 30 years. The step-up SIP corpus after 30 years (Rs6 crore) is almost double that of the SIP without step-up (Rs3.5 crore). Thus, by investing a little more every year, your corpus can grow significantly. Again remember, all of this is tax-free. 


You may wonder how a small increase of 10% per year, can double your outcome. This is mainly due to the power of compounding, rightly called the 'eighth wonder of the world' by Albert Einstein. There are two things that help compounding work better—a higher rate of return and a longer period of investment. That's why power of compounding works exponentially when you invest for periods like 20, 30 or more years. 


In order to help investors explore the potential of this exponential growth, the mutual fund industry has introduced the concept of a 'perpetual' SIP, which helps one to be disciplined savers for very long periods. Most wealth creation opportunities are missed because we do not allow our investments to compound for adequately long periods for reasons as trivial as failing to renew SIPs on their due date. In this sense, perpetual SIPs help inculcate discipline and long-term saving. 


But what if you start a perpetual SIP but then need to change the amount, or temporarily stop your SIP instalment, or you simply decide to change your investment allocation? Many mutual funds today offer flexible options to help keep you investing for the long term. If you are not able to meet your SIP commitments for a month or two owing to personal exigencies, some funds will allow you to pause your SIP. You can restart your SIP instalments once your cash flows normalise. There is flexibility to also increase or decrease your SIP amounts for a brief period, say, when you receive additional cash flows like a bonus or ex-gratia or when you are able to contribute lesser in a month. If you change jobs and the date you receive your salary changes from, say, 1st to 25th of the month, there is no need to open a new SIP account but simply opt for change in your SIP date and continue it. Make sure you ask your adviser or fund about these features before starting a perpetual SIP. The sole aim of these options is to enable you to save for decades instead of years without needing to discontinue your SIP due to changes in personal circumstances, thus allowing you to enjoy compounding benefits. Perpetual SIPs with these features offer you the freedom to pay the way you want to, while sticking to your wealth path.

 

Starting early and investing for the long term are the essence of wealth creation. For example, Rs10,000 per month gave Rs3.53 crore in 30 years at 12% per annum in the above example. If the same amount were to be targeted in 10 years, the monthly contribution would rise 15 times to Rs1.5 lakh per month (assuming the same return on investment). 


Padma Shri Jadav Payeng from Assam started planting trees in the barren sand bars of Assam in 1979, and did this relentlessly for nearly 30 years. The result—a beautiful forest that houses over 100 elephants, besides tigers, rhinos and deer. Thanks to him, over 1,300 acres of sandbars have been transformed into the Molai Forest located in Jorhat, Assam. Consistency can create results like the Molai Forest. A perpetual SIP can do similar wonders for your wealth.





Invest Rs 1,50,000 and Save Tax up to Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Performing ELSS Funds. Save Tax Get Rich

For further information contact SaveTaxGetRich on 94 8300 8300

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com

OR

Call us on 94 8300 8300

Popular posts from this blog

Mutual Fund Exit Load Changes

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300 Mutual Fund Exit Load Changes AMCs don't communicate about any change in exit load directly with investors, but do update on their website   The exit load applicable to your investments is the load which existed at the time when you invested in the particular fund. Any subsequent changes in the exit load will not be applicable to your investments.   However, Asset Management Companies ( AMCs ) periodically publish addendums in the newspapers, which state any change in exit loads of specific schemes managed by them. Such changes are also posted on their websites. However, a direct communication to an investor is not made, considering the costs involved in doing so. In their own interests, investors should not only track the performance of the funds they i...

Atal Pension Yojana contribution Tax Benefit for spouse

Contributions to Atal Pension Yojana (APY) are eligible for the same tax benefits as the NPS. This means that the contributions can be claimed under Section 80CCD (1B). The current limit for Section 80CCD (1B) is   Rs   50,000, over and above the   Rs   1.5 lakh limit under Section 80C. Section 80 CCD (1) is a different one, meant to cover employers' contribution towards NPS . You cannot get tax benefit by investing in the name of your spouse under Section 80 CCD . ------------------------------ ----------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saver Mutual Funds to invest in India for 2016 Best 10 ELSS Mutual Funds in India for 2016 1. BNP Paribas Long Term Equity Fund 2. Axis Tax Saver Fund 3. Religare Tax Plan 4. DSP BlackRock Tax Saver Fund 5. Franklin India TaxShield 6. ICICI Prudential Long Term Equity Fund 7. IDFC Tax Advantage (ELSS) Fund 8. Birla Sun Life Tax Relief 96 9. ...

Birla Sun Life Mutual Fund Launches Birla Sun Life NIFTY ETF

Birla Sun Life has launched a new fund namely, Birla Sun Life Nifty ETF, an open ended exchange traded fund. The new fund will be open for subscription from 4th July to 18th July 2011, at an offer price of Rs 10 per unit. The investment objective of the scheme is to generate returns that closely correspond to the total returns of securities as represented by S&P CNX Nifty, subject to tracking errors. No exit load will be charged under the scheme. The performance of the scheme will be benchmarked against S&P CNX Nifty and will be managed by Satyabrata Mohanty.   -----------------------------------------------------------------   Also, know how to buy mutual funds online:   1) DSP BlackRock Mutual Funds: http://prajnacapital.blogspot.com/2011/05/buying-dsp-blackrock-mutual-funds.html   2) Reliance Mutual Funds: http://prajnacapital.blogspot.com/2011/06/buying-reliance-mutual-funds-online.html   3) Birla Sunlife Mutual Funds: http://prajnacapital.blogspot.com/2011/...

Mutual Fund Reivew: Birla Sun Life Asset Allocation Conservative

Birla Sun Life Asset Allocation Conservative has numbers on its side to prove its credibility… Don't be surprised to find this Fund of Funds ( FoF ) in our recommendations. It has earned its place. And despite the difference in the structure of the product, there is no arguing with the numbers.   Of the total 6 years of its existence, the fund has been among the top 10 funds in its category in four of them. Last year it put up an average show and the only year it underperformed its peers was in 2008.   One aspect to look at when investing in an FoF is the expense ratio. The expense ratio of an FoF is capped at a lower limit of 0.75 per cent (2.50% for an actively managed fund). However, the FoF not only has its own expense (though lower) but even the expense ratio of the fund it is investing into. Fortunately, the fund manager takes that into account. "Expense is one of the important criteria used for fund selection and is the main reason for our investment in BSL Ind...

Short-Term Investment Options in Mutual Funds

Mutual funds offer liquid funds and ultra short term funds in the debt category, which are suitable for short investment periods. Ultra short-term funds were earlier known as liquid plus funds. Liquid funds invest in money market instruments with a maturity of 91 days or less. However, there are no such restrictions for ultra short-term funds. Who should invest in these? These are open-ended schemes. Investors with a short investment horizon or with surplus cash and low risk appetite should look at these. These could include corporate as well as retail investors. Those interested in staying invested for less than 15 days can opt for liquid funds. Retail investors who want to remain invested for two-four months, can look at ultra short-term funds. The short duration for both liquid and ultra short-term funds shields them from any interest rate volatility.   What kind of returns do they offer? In terms of an investment period less than 15 days, these funds are comparable to a ba...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now