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I've got larger response for my article on Systematic Investment Plan - where people seems to be really curious and interested in creating wealth using SIP.

Many people asked about right time of starting Investment through SIP and ideal amount for such SIP investments. This article may prove to be helpful for all those readers who are aspiring to create good amount of wealth using SIP.

Ideal Amount for SIP:

Ideally the amount could vary based on the risk appetite of individual and the portion of his monthly income he/she wants to invest in SIP. I guess investors should follow 80-20 rule, for such allocation. Let's understand this through an example. My friend Rahul is 23 years old. He's earning 30k per month. He doesn’t have many liabilities from the family and he's having HIGH risk appetite. He can save 15k from his monthly salary and want to invest maximum in the stock market related instruments.

I would advise him to invest 80% of his monthly saving (12k) into equity and equity oriented instruments. The rest 20% (3k) should get invested into less risky investment options like, PPF. Does this rule apply all the time? No. He should keep reviewing his responsibilities and liabilities and risk taking ability every 3 to 6 months and based on that he should modify his investment profile with 80-20, 75-25 or 70-30 investment rule.

Timing the SIP – Start Early:

I strongly believe that investment in SIP should start at the earliest because there’s definite reason behind this and let’s understand this with example.

Let's compare two friends: Mit and Jigar. Mit has started investment at pretty early stage. He started saving Rs750 per year from the time he was 15. After 15 years he has stopped this investment. So his total investment till date is Rs. 11250 over the tenure of 15 years.

On the other hand, Jigar starts investing Rs. 5,000 per year when he is 30 and will continue investing this amount every year till he is 60. So his total investment would be Rs. 300000 over the tenure of 30 years.

If both earn 15% return per annum then, who will create more wealth when they retire at the age of 60?

Answer is Mit. His annual saving of Rs. 750 between the age of 15 to 30 would aggregate to Rs 27.7 lacs when he’ll be 60, whereas Jigar’s Rs. 5000 annual savings between age of 30 to 60 would accumulate to Rs 25 Lacs when he’ll be 60.
Here, it’s essential to understand the power of compounding and it’s the single most reason for you to start investing immediately. Even small chunk of investment makes big difference over the period of time. You can see Mit and Jigar both would create enormous wealth, compared to their investment. But for Mit it took really less money and the time duration to build the wealth as he started at the early investment. This highlights the importance of starting early and right at your investment.
In a nutshell, “Your money never sleeps. It’s working for you 365*24*7, so start early at your investment.”

Happy Investing!!

Systematic Investment Plan - Tax saving, money making and more...

This article is devoted to all the investors who want to take advantage of India growth story but refrain from doing this due to less knowledge about stock market or economy fundamentals.

I recommend them to go with Systematic Investment in ELSS or Equity focused Mutual Funds. Let me explain this in detail and why I’m so bullish on this kind of investment.

Systematic Investment Plan:

                In a simple terminology, it’s about investing specific amount of money at regular intervals for continuous period of time. I hope most of the people know about RD – Recurring Deposit, where we deposit specific amount of money to the bank/post regularly for specific time duration. Here method of investment remains same, but only investment instrument changes. In SIP, investment goes to the equity via MF scheme. Here investor can choose MF scheme based on his own risk appetite.

Benefits:

• SIP gives relief to the investors from the task of timing the stock markets. Believe me, it’s the most difficult task which even Investment Gurus are not able to do very well.
•  It makes investment as habit and not the gambling. SIP allows the investor to buy units on a given date every month/every week. The investor decides the amount and also the mutual fund scheme.
• Investment amount remains same, but investor can definitely buy more units in declining market and less number of units when market is trading at high valuation.
• Investor automatically participates in the market swings, so there’s no need to time the market.
• SIP averages the risk through consistent investment at every level of market. We don’t need to bother, if market is down or up and still we get handsome returns. This is because now we have made investment as habit.
• SIP can start with minimum investment of Rs. 500, so even small investor can participate in this investment instrument.
• Fix amount of money automatically gets deducted through ECS, every month/week. This is best way of investment when you don’t have to control when to invest or not to invest. This would make a habit of keeping some corpus aside for the SIP, every Month.
• SIP in Tax Saver MF Schemes:  I believe this is the best way to invest through SIP. Investor gets many advantages.

1). Tax Saving: Investor gets immediate tax benefit in the respective tax bracket.

2). Investment Lock in – 3 Years:  I believe investment horizon of more than 3 year enhances

3). Tax free income: All this ELSS scheme gives you tax free return.

4). Invest for 3 Year – “Forget your tax worries”: We all know when it comes to Feb, March then we’re always worried about the next pay check, which may be cut heavily due to tax liability. With the help of SIP investor just needs to invest for 3 years consistently and that’s it. At the end of third year, the same SIP amount which was invested at the beginning of SIP could be withdrawn (without any tax liability) and reinvested in the SIP again. This will manage and save your tax using the same SIP year after year once you invest for 3 consecutive years.

5). Minimum lock in Period: Tax Saver MF has the minimum lock in period, compared to other tax saving instruments. This means if you’re in 30% tax bracket, then ideally you’re making/saving 30% on the investment every 3 years. Just compare it to NSC where the lock in period is very high and at the same time you’re liable to pay tax on the gain from NSC.

I hope this article would encourage and help investors in creating wealth over the period of time using SIP.

Happy Investing !!