Honest wealth creation through a Systematic Investment Plan (SIP) has a formula! Mutual Funds help you in wealth creation by adding dividend or gains to the principal amount, which results in a large amount at the end of investment period. The compound interest is added to the principal of a deposit and the added interest again earns an interest.

Following are a few points which will help you get more profits through an SIP (Systematic Investment Plan):

Invest early

To make most of compounding in an SIP, one must follow the golden rule of investing that is beginning early. This is because of fact that longer the investment cycle is, bigger will be the returns in the end.

Keep the investments for long time
The longer the period of investment is, more the chance to increase the gain is. It is due to dividend that someone receives on the current sum of money, which is higher, the longer you invest.

Invest regularly

SIP can give great returns on the wealth of investors who have a regular monthly income and cannot make lump sum investments. SIP is suitable for first time investors and for investors those who invest in equities due to market volatility and risk.

Cost averaging

One of the most important benefits of an SIP is cost averaging. The amount invested is fixed for an SIP; hence the number of units purchased for it in the market will be high and vice versa. Therefore, the average cost of a unit is reduced which in turn benefits the investor.     

Conclusively, compounding and SIP can benefit you the most if you begin investing early, keep investments for long time and invest in a regular and disciplined way. By following these steps, your principle will keep growing and will earn you a larger amount at the end of the investment period.

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Fixed deposits have always been popular due to the safety of capital and confirmed returns. The high interest rates which the FDs are earning in past few years have further increased the popularity of fixed deposit investment.

Here’s a piece of advise: It would be better to lock in your money in long term fixed deposits since RBI has cut repo rate and cash reserve ratio several times.

A few tips to increase returns in fixed deposits may come in handy:

Split your FDs
It is usually better to split your Rs. 5 lakh fixed deposit investment into five FDs worth Rs. 1 lakh each in various banks, since fixed deposits which accumulate up to Rs. 1 lakh are backed by deposit insurance.

Ladder your investment

The biggest risk that even the best fixed deposit scheme in India faces is the risk of your money being locked up for a long tenure at a low rate of return. To counter this, ladder your amount available for investment into smaller amounts. So, the first fixed deposit should be for one year, second for two years and so on.

Invest in a Public Sector Bank

Public sector banks offer a higher return on fixed deposits than private banks. So, one can get higher returns accompanied with more safety and security.

Avoid tax on your final amount

The interest earned through fixed deposits is not tax-free. The interest income from FDs up till Rs. 10,000 is exempt from tax. This tax can be avoided again if you break the total FD amount and invest smaller FDs in different banks.

RBI is likely to continue rate cuts in the coming fiscal year. So, the medium and long term fixed deposit investments will see larger positive return and not the short-term fixed deposits. Also by keeping these points in mind, one can increase the interests for fixed deposit for any term. 

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