5 Benefits of Monthly Investment Plans
Investing is essential to build wealth over a period to achieve your various financial objectives. The right kind of investment plan invests in different financial products, such as equities, debt, mutual funds, term deposits, insurance, and others to meet your long-term life goals.
Your expenses continue increasing due to the inflationary pressure, and your current savings may not be adequate to meet your monetary aspirations in the long term. Smart investment decisions ensure your money continues to grow while maximizing the returns.
Based on your personal needs, you can choose from different types of financial products. Some factors that you should consider while determining where to invest money are your age, risk appetite, investment horizon, and monetary objectives.
One type of financial product that is gaining popularity is a monthly investment plan. If you are a salaried professional earning a regular income every month, here are five benefits why a monthly plan is a good investment option:
- Builds wealth through the power of compounding
The power of compounding is a highly beneficial tool that can help you accumulate a sizable corpus over the long-term. When you invest, your principal earns a certain return on the investment. With compounding, these are reinvested to earn additional returns, which helps to increase wealth over the years. As the returns are directly dependent on the investment tenure, it is important you start investing immediately.
- Provides the advantage of rupee cost averaging
Even financial experts are unable to time the market and invest to earn the highest returns on their investments. This may also be a reason as to why you may delay your decision. When you opt for the monthly investment option, you do not have to wait for the market conditions to be favorable. It allows you to benefit from rupee cost averaging to even out the market fluctuations over the long-term. Investing a fixed amount each month lets you accrue more units when the price is lower and vice-versa. Therefore, your average cost of investing reduces over a longer period.
- Encourages financial discipline
Financial discipline is quite important to ensure that you meet your long-term investment objectives. You may start your investment plan with enthusiasm, but it may diminish over a period. With a monthly investment plan, you can invest smaller amounts at regular intervals to generate wealth over the long-term. Doing this makes it easier for you to save money for future growth.
- Provides convenience
Making a huge lump-sum investment may not be possible, especially if you are a working professional earning a specified monthly income. It is easier to save a smaller sum regularly, as you can grow your wealth with discipline and benefit from the power of compounding aspect. Additionally, you can set up an automatic debit facility from your bank account. This ensures that the amount is invested on a particular date without worrying about missing the same.
- Offers tax exemptions
Several tax-saving investments can help you reduce your annual tax liability. An amount of up to INR 1.5 lakh invested in different financial products is eligible for a tax deduction under section 80C of the Income Tax Act, 1961.
Tips to select the right investment plan
- Opt for a plan that matches your financial objectives within the required time
- Determine your risk-taking ability to pick the most suitable alternative, as every financial product has certain inherent risks
- Look for a financial product that offers life insurance cover; if you are not adequately covered, invest in a plan that provides higher coverage
Many financial institutions offer different types of tax-savings investments, which include monthly plans. Doing your research to understand the features, terms, and conditions of the available options will help you make an informed decision.