Salaried individuals often seek lucrative investment avenues to help grow their income and build a wealth corpus for the future. SIPs are one of the most reliable ways to start investing. A systematic investment plan or SIP is a hassle-free way of investing in mutual funds with fixed contributions at regular intervals. Since salaried individuals earn a fixed monthly payout, it is easier for them to invest in mutual funds through SIPs rather than lump-sum investments. In this article, we explore the reasons why SIPs are best for salaried individuals.

Duration is used to assess how sensitive a bond's price is to changes in interest rates. It represents a weighted average time it will take to get cash flows from the bond such as interest payments and principal repayment. In this regard, there are two forms of duration measures namely: the Macaulay duration and modified duration. The Macaulay duration provides an indication about when cash flows from the bond will be received whereas modified duration shows how much the price of the bond will decrease when the rate of interest rises with 1%. By estimating how much bond’s prices might fluctuate due to changes in interest rates, this gives valuable information for better investment choices and efficient management of financial risks.

Here’s a list of reasons why SIPs are the best investment instrument for salaried individuals:

Compounding

One of the biggest benefits of SIPs is the power of compounding they bring to the table. Under the power of compounding, your returns from the investment get reinvested and further accrue returns. As a salaried individual, you contribute a fixed sum via SIPs. This principal investment earns returns, which are reinvested into the fund. Over a period of time, this compounding effect helps generate a substantial wealth corpus.

Disciplined approach

Investment discipline is a crucial trait shared among successful investors. Following the SIP route to mutual fund investing is prudent because you need to contribute a fixed sum at regular intervals. This helps cultivate a regular and disciplined investment pattern. Contributing to your mutual fund investment either monthly or quarterly helps you build a consistent portfolio without the need to constantly monitor the market. Espousing such a disciplined investment approach helps you remain committed to your financial goals.

Convenience

As a salaried individual, you may not have the time or inclination to monitor the market or engage in complicated market assessments to handle your investments. This is one of the primary reasons why SIPs are best for salaried individuals. SIPs offer a hassle-free investment route. You can set-up standing instructions with your bank to auto-debit your SIP contribution on a specific date, at regular intervals. Beyond that, you do not need to engage in any extra work. SIPs are managed by professional and experienced fund managers who monitor the market and change asset allocation according to the investment objectives of the fund. They carry the management burden on behalf of the investors, ensuring zero hassles for working professionals.

Rupee-cost averaging

Entering the equity market and selecting stocks individually requires not only thorough market knowledge, but also time to monitor and assess trends. Salaried individuals generally do not have this knowledge or time at their disposal. This is another reason why SIPs are best for salaried individuals. SIPs help salaried individuals overcome the need to time the market. You can start and continue MF SIPs, regardless of the market conditions due to rupee-cost averaging. The rupee-cost averaging feature allows you to buy more units of the fund when the market is low and less units when the market rises. By investing a fixed sum at regular intervals, you end up reducing the average cost of one unit over time. Essentially, rupee-cost averaging helps prefer the returns of your portfolio despite market volatility.

Flexibility

The inherent flexibility of SIPs makes them best-suited for salaried individuals. SIPs can be started with relatively nominal investments, often starting as low as Rs. 500 per month. So, if you are a young professional with limited disposable income, you can still start investing in mutual funds through SIPs. You can flexibly increase or decrease the SIP amount as your financial situation evolves, This adaptability helps salaried professionals stay focused on their goals and invest in a disciplined way. Additionally, you can choose how frequently you wish to contribute to the investment. Depending on your requirement, you can choose from weekly, monthly, and quarterly contribution options.

• Salaried individuals benefit from compounding, growing their wealth consistently with regular contributions and reinvestments.
• SIPs leverage rupee-cost averaging to reduce risks from short-term market volatility and eliminate the need to time the market.
• Salaried professionals can flexibly manage investment amounts and conveniently automate contributions for a hassle-free experience.

Now that we have discussed the reasons why SIPs are best for salaried individuals, let’s review a few tips that can help you optimise your SIP investments:

Tip 1: Set your auto-debit date at the beginning of the month or around the time your salary gets credited. This ensures you have enough funds in your bank for the deduction and also prioritises savings over spending.

Tip 2: Invest in equity-linked saving schemes or ELSS funds to enjoy tax deductions up to Rs. 1.5 Lakhs annually u/s 80(C) of the Income Tax Act 1961.

Tip 3: Consider opting for step-up SIP which helps you increase your SIP contributions by a predefined amount at regular intervals to match your expected income growth.

SIPs offer a structured investment approach to investing for different types of investors, including salaried individuals. We’ve covered the 5 main reasons why SIPs are best for salaried individuals above. In a nutshell, SIPs simply allow you to invest in a mutual fund scheme without having to save up large sums and then invest all at once. As a salaried professional, you have the flexibility to invest as per your comfort and watch your wealth grow under the impact of compounding and rupee-cost averaging.

Convinced about SIP investments? Start your journey today on the Bajaj Finserv Mutual Fund Platform where you can compare 1000+ mutual funds, review past performances, and more in a few easy clicks. Start your SIP investments from Rs. 100 onwards, estimate your returns using the Mutual Fund Calculator, and get on track to achieve your financial goals!