In conversation with Vishav, a special correspondent with Outlook Money
The popularity of SIP Investment has risen like never before. However, a few investors are still confused about SIP. In this video, we are helping them to clear their confusion once and for all.
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#SIP #MutualFund #Investment #Money #OutlookMoney #OutlookMagazine #OutlookGroup
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00:00 The popularity of SIP investment has risen like never before.
00:03 And people like me are having a lot of doubt about SIP like that.
00:07 How should they go about it?
00:08 And what really the SIP stands for?
00:11 So in order to clear all the doubts and to remove all the confusion, we are joined in
00:16 by our special guest, Vishwa, who is a special correspondent with Outlook Money.
00:20 Thanks Vish for joining us.
00:22 So first of all, I would like to start off with this question that youngsters like me
00:27 who has just taken up their job.
00:28 So what exactly is an SIP?
00:30 Can you familiarize those people with SIP?
00:33 See, SIP as it stands for Systematic Investment Plan.
00:38 So it is actually not a kind of investment, but it is a mechanism to invest in mutual
00:44 funds. Right.
00:45 So mutual funds, we all know that they are equity linked.
00:49 So it depends on how the market performs.
00:51 The returns of the mutual funds are according to that.
00:54 But you can invest in mutual funds in different ways.
00:58 First is you can just, you know, you have a huge amount of money and you just invest
01:02 that whole money in the mutual fund plan.
01:04 The other thing is to invest monthly a particular amount of sum in a mutual fund.
01:10 So to do that, we have a systematic investment plan.
01:14 So what systematic investment plan or an SIP does is it allows you to invest a particular
01:19 sum every month or periodically it can be every quarter also in a particular mutual
01:24 fund. So that is an SIP.
01:26 But there are a lot of other venues as well in which you save monthly like FDs and RDs.
01:31 So how SIP is different from RDs and FDs?
01:34 Right. So see, like I said, it is linked to the stock market if you are investing in an
01:41 equity plan or there are also debt mutual funds, which are, you know, if you want to
01:46 invest in government securities and, you know, corporate bonds, so then you have debt
01:51 mutual funds also. The problem with RD and FD is while they are very safe
01:55 investments, they are not linked to the market performance, but the returns are not
01:59 that high. So right now, as you know, that RBI has been, you know, reducing, cutting
02:06 down the lending rate for the last four monetary policy committee meetings, as we
02:11 know. So consequently, FD rates are also falling, RD rates are also falling.
02:17 Bank deposits are not giving that good returns.
02:19 So that's why if you want better returns over the long term, then mutual funds are
02:25 the option for you. And can you give a glimpse of like what kind of difference is in
02:29 between the returns we get in the SIP and mutual funds per se and in FDs?
02:34 Again, it depends on the market, how the market performs.
02:39 So if like over long term, mutual funds can give returns up to 12 percent, 13 percent,
02:45 even up to 15, 16 percent.
02:46 But on an average, we can say equity mutual funds usually over the long term, they have
02:52 a record of giving 12 percent returns.
02:55 But when we talk about FDs or even recurring deposits, so they don't give above 10
03:03 percent. I mean, right now they are even, you know, 7 percent, 6 percent.
03:07 These are the FD rates right now, depending on how the duration for which you get the
03:10 FD. And second question is, does one get any tax benefit by making like such
03:15 investments? Yeah, that's that's another positive thing about the mutual funds, about
03:20 SIPs. While you can invest in a regular mutual fund, which does not give you a tax
03:25 benefit. But even in that case, what happens is the gains that you get, they are
03:32 taxed at only 10 percent.
03:34 That too only if they exceed one lakh rupees.
03:36 So capital gains.
03:37 Right. But if you invest in equity linked savings schemes, these are also kind of
03:43 mutual funds. You also get a tax benefit, a tax deduction under Section 80C of the
03:48 Income Tax Act, which has a limit of rupees 1.5 lakh.
03:52 So up to 1.5 lakh, if you invest in an ELSS scheme through SIP, so that you can deduct
03:59 from your income so it won't be taxed.
04:01 So that is a benefit of mutual funds.
04:03 And how safe are such investments?
04:06 Are they, is there any kind of a risk involved in it?
04:08 Can you lose money while investing through SIPs?
04:11 Like these kind of the doubts are like people having in their mind.
04:14 So what you would like to say or convey to them?
04:16 Right. See, we keep watching these advertisements on TV, mutual funds are safe and
04:22 you know, we keep hearing mutual funds are subject to market risk.
04:25 So they are subject to market risks.
04:27 But the thing is, if we learn anything from history, the performance of the stock
04:34 market over a period of time, we see that while there has been volatility, but over
04:39 time it has grown.
04:40 It has grown from, you know, when Sensex started from 100 points, now it is around
04:45 37,000 points.
04:46 So it has grown over time.
04:48 There can be dips and there can even be falls on the on the way.
04:53 But in the end, the overall growth trajectory is still rising.
04:57 Now, what happens is if you invest at a point where the mutual fund, where the stock
05:03 market is at a high and if you withdraw where market is at a low point, then of course,
05:08 it's a bit, you know, you can incur a loss at that particular time.
05:12 But the beauty of mutual funds through investing in mutual funds through SIPs,
05:17 specifically SIPs is that when the market is volatile, so you kind of, you know,
05:24 average your input cost.
05:26 And when we are like about to invest in SIPs or in mutual funds, like there is some sort
05:31 of differentiation that if we are, if you want to accomplish a short term goal, then we
05:36 have to invest in these kind of mutual funds.
05:38 If we want to achieve a long term goal, then we have to invest in these kind of mutual
05:41 funds. Can you throw light on this thing?
05:44 For short term goals, one can invest in, you know, debt mutual funds because they are,
05:49 they are, you know, comparatively more secure, more safe.
05:53 You get not exactly a fixed return, but the volatility is not that high.
05:58 So for short term goals, you can invest in debt funds and for long term goals, equity
06:02 funds would be the right bet because markets will give you good returns over the long
06:06 term. So in the end, I would like to ask you, what are the requirements to start a
06:11 systematic plan?
06:12 In starting a systematic investment plan is very easy.
06:16 All you have to do is, you know, go to a website of any mutual fund house, do your KYC
06:22 and then you can open an account and start an SIP right away just by linking your bank
06:28 account with that particular.
06:29 You just have to get your EKYC done, which is very easy to do with Aadhaar nowadays.
06:33 And you choose the mutual fund that you want to invest in.
06:38 You can always take your, take the help of your financial advisors or you can, you know,
06:42 just do some research and decide which mutual fund you want to invest in and just start
06:47 an SIP. You set a standing instruction, how much money you want to be deducted from your
06:52 account every month. You set the standing instruction and every month that money will be
06:55 deducted and it will be invested in that particular mutual fund.
06:58 And I hope this must have been a very enriching session and we must have stayed up all
07:04 your doubts. So in the next week, we will also coming up with another theme and we will
07:09 try to remove all your doubts about that particular theme.
07:12 Till then you can keep watching Outlook Money and subscribe to Outlook Money.