Do you desire to accumulate a sizeable corpus? Have you already heard from your friends, who are seasoned in managing their wealth, about the importance of investing regularly in equity?
As a matter of fact, the financially wise always recommend that no matter how well you perform at your job or business, you must inculcate the habit and discipline to invest your money regularly. This habit ensures that your savings automatically grow, while you focus on your daily life and career goals.
Moving on to saving and investing correctly, if you go through the portfolios of seasoned investors who have made real money through their investments, you will notice that they always maintained a balanced portfolio. In that sense, no good portfolio is ever complete without its fair share of equity exposure. This is because equity as an asset class is one that invariably earns you the steepest returns over the long term.
Even if you are averse to the volatility that equity brings on board, you must not avoid it, for equity in the long term always pays off when invested strategically. The best route to invest in equity is through monthly investment plans. Here are some of the reasons behind this:
- Inculcates Financial Discipline
A disciplined saving and investment approach is paramount to earning real long-term wealth. Most people tend to invest when they feel optimistic and stop immediately when they learn that the market is not performing well. However, this practice can be best described as dubious if you are seeking to earn real returns through your equity investments.
Monthly investment plans help here by ensuring that a fixed investment amount is debited every month on its designated date. This helps to seamlessly adopt a diligent approach that doesn’t depend on your sentiments or busy schedule. A good idea here is to set the debit date close to your salary date so that the money doesn’t get spent before it is rightly invested for the future.
- Benefit from Compounding
The law of compounding is fascinating in terms of its impact on the resulting sum over a long-time horizon. The practice of continuous compounding ensures that your principal and its accumulating interest is re-invested each time. This in turn eventually turns a small amount into a large corpus over a long time span.
A monthly investment plan takes advantage of this law by investing money each month. This helps in contributing immensely to the long-term compounded growth of the principal invested.
- Avoid Missing Out Due to Timing Entry into Equity Market
Another common tendency among people is the attempt to try and time their entry into the stock market. It is true that buying cheap and selling high earns you high returns. However, unfortunately, no formula exists that can predict the market spot on, or to what extent the stock market indices can fall or rise.
In attempting to time the market entry, what’s lost is the time and compounding benefits. What is also lost is the benefit of regular investing that helps you to average out your overall purchase cost.
When the market is bullish, the fixed monthly investment amount enables the purchase of fewer units. On the other hand, when the market has a bearish sentiment, the numbers of units bought are more. Monthly investment plans hence help with the benefit of a lower average purchase cost.
- Enjoy Tax Benefits
The whole principle of investing in equity on a monthly basis is to earn lucrative returns over a long-term period. Staying invested in equity over a longer time span brings more returns than short-term investments. Also, the long-term income earned through equity is subject to taxation benefits under long-term capital gains, trimming a significant amount of tax liability. Disciplined monthly income plans that regularly channelise savings into equity investments enable you to enjoy these higher returns subject to tax benefits over the long term.
When you are caught up in your job, work commitments and personal needs, it’s understandable that it can get hard to focus on investing.
Getting yourself a good monthly investment plan is a smart financial move. This way you can enjoy the fruits of timely and quality equity investment for a longer time!