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| Scheme Name | 1-Year Return | Invest Now | Fund Category | Expense Ratio |
|---|---|---|---|---|
| Axis Nifty 50 Index Fund | +32.80% | Invest Now | Equity: Large Cap | 0.12% |
| Axis Nifty 100 Index Fund | +38.59% | Invest Now | Equity: Large Cap | 0.21% |
| Axis Nifty Next 50 Index Fund | +71.83% | Invest Now | Equity: Large Cap | 0.25% |
| Axis Nifty 500 Index Fund | — | Invest Now | Equity: Flexi Cap | 0.10% |
| Axis Nifty Midcap 50 Index Fund | +46.03% | Invest Now | Equity: Mid Cap | 0.28% |
For beginners, the monthly Systematic Investment Plans (SIPs) have emerged as a popular and simple solution for those looking to put their money in mutual funds. Over the past few years, SIPs have gained substantial traction, offering a diverse and cost-effective way to build wealth.
What is an SIP?
A Systematic Investment Plan (SIP) is a disciplined approach to investing in mutual funds, where a fixed sum is invested at regular intervals, usually monthly or quarterly. Instead of making a lump sum investment, you contribute a smaller amount regularly, which helps you accumulate wealth over time. SIPs are often favoured by those who prefer to invest small amounts consistently.
The essence of SIPs is the power of compounding and rupee cost averaging. With SIPs, you buy more units when the market is down and fewer units when the market is up. This helps average out the cost of your investment over time, lowering the risk of market fluctuations.
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How does an SIP work?
Monthly SIPs provide an easy and automatic way of investing in a diverse asset class without directly getting exposed to the risks of equity markets. Once you register for an SIP, you select the amount to invest and the date of investment. This process is automated, which means the amount is debited directly from your bank account without any manual intervention.
Over time, your investments accumulate and compounding works its magic, turning even modest contributions into a substantial sum. Also, as SIPs spread your investment over a long period, it mitigates the risks of market fluctuations. SIPs also offer high liquidity as most of the mutual funds allow partial sale of net asset value (NAV) units or closing the investment in a particular scheme.
Benefits of SIP
Rupee cost averaging:
One of the biggest advantages of SIP is rupee cost averaging. By investing a fixed amount regularly, SIPs ensure that when the market is low, you buy more units, and when the market is high, you buy fewer units. This reduces the average cost per unit over time, which in turn increases your long-term returns.
Disciplined investing: SIPs inculcate financial discipline. The fixed and recurring contributions force you to budget around your investment, helping you develop a habit of saving regularly.
Flexibility and convenience: With SIPs, investors can start small and increase their contributions as their financial situation improves. For instance, you can begin by investing as little as ₹100 a month and later increase it as your income rises. Additionally, SIPs are flexible in terms of halting your contributions if you face a temporary financial crunch.
Power of compounding: The power of compounding is what helps SIPs grow over time. By staying invested and allowing your returns to be reinvested, you earn returns on your returns. The longer you stay invested, the greater the impact of compounding on your wealth.
Lower risk of market volatility: Investing through SIPs allows you to weather market fluctuations more effectively. Instead of attempting to time the market, which is difficult even for seasoned investors, SIPs reduce the impact of volatility.
Tax benefits: SIPs can be an effective way to save taxes. Under Section 80C of the Income Tax Act, 1961, investing in Equity Linked Savings Schemes (ELSS) through SIPs allows you to claim a deduction of up to Rs 1.5 lakh from your taxable income in a financial year.
Factors to consider before investing in SIPs
Investment horizon: The longer your investment horizon, the more beneficial SIPs become. If you’re a new investor, it’s important to remember that SIPs are designed to be long-term investments. To maximise returns, you should aim to stay invested for at least 5 to 7 years.
Risk tolerance: Before investing, assess your risk tolerance. SIPs are available in a wide range of mutual funds, from high-risk equity funds to lower-risk debt funds. While equity SIPs offer higher returns, they also come with higher risk. On the other hand, debt and hybrid funds are more stable but may offer lower returns.
Fund performance: While SIPs are designed to reduce the risk of market volatility, choosing the right mutual fund is key to making the most of your investment. Look at the fund’s past performance, management team and portfolio before investing.
Amount to invest: Start small if you’re unsure about committing a large sum. SIPs allow you to invest as little as ₹100-500 per month.
Overall, SIPs are a simple, flexible and disciplined way to grow wealth over time. Whether you’re looking to save for retirement, a child’s education or just to build wealth, SIPs could be an excellent starting point for your investment journey.
