4 ways to get the best out of your Systematic Investment Plan (SIP)

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A systematic Investment Plan (SIP) is an investment route offered by Mutual Funds wherein one can invest a fixed amount in a Mutual Fund scheme at regular intervals– say once a month or once a quarter, instead of making a lump-sum investment.

SIP has been gaining popularity among Indian MF investors, as it helps in investing in a disciplined manner without worrying about market volatility and timing the market. SIP is easily the best way to enter the world of investments, here are some tips to get the best out of your SIP investments

1. Choose Direct Plans

Direct plans have lesser costs and give higher returns than regular plans. If the Total Expense Ratio (TER) of a regular plan is 0.75% more than that of the direct plan, then the direct plan will give a 1% higher CAGR return than the regular plan. Over a long investment horizon, if you compare the returns of mutual fund direct vs regular plans, the direct plans can add up to a substantial amount of difference in returns on your investment.


2. LTCG Tax Harvesting

Tax harvesting is utilising the tax-free window of Rs 1 lakh to reduce the overall LTCG tax. If you have invested and gained Rs 1 lakh, you can sell your investment, realise that gain, and invest it back without being liable to pay taxes. On the surface, LTCG tax harvesting savings could appear insignificant. However, when your portfolio expands and the period of wealth generation lengthens, these modest sums can easily add up to substantial sums.


3. Invest during drawdowns

Maintain a separate fund that is only used for stock market corrections. The stock market is subject to corrections; on average, the Nifty 50 has dropped more than 10% from its high each year at some point. By adding more to the mutual fund investments in response to corrections like these, you can improve your CAGR returns.


4. Choose Top-Up SIP

In a Top-up SIP, the investor increases his SIP amount every year, As an individual increases his income over time, it makes sense to increase investment contributions at the same rate. Top-up SIP helps in accumulating a higher amount of money, achieving your financial goals faster & keeping up with inflation.


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