Mutual fund owners fund houses collect money from investors sharing a common investment objective and invest this pool of funds in securities and money market instruments. Depending on the nature of the scheme, its investment objective and its asset allocation strategy, a mutual fund scheme can invest in equity, gold, immovable assets, company fixed deposits, certificates of deposit, treasury bills, commercial papers, debentures, government securities . , e.t.c. A mutual fund portfolio is a combination of stocks and other securities in which it invests. Mutual funds have fund managers who are responsible for keeping an accurate account of investments to keep the portfolio well diversified. They are also responsible for formulating and executing investment strategies to help the scheme outperform its underlying benchmark and help investors earn capital appreciation over a long period of time.
Equity Mutual Fund Ideal for those who have high risk appetite and want capital appreciation over the long term. Since these schemes primarily invest in equities and equity-related instruments, your portfolio may feel undervalued in the short term. However, equity oriented schemes generally perform over a longer period, which is why it is better to have an investment horizon of 5 to 7 years while investing in equity mutual funds. If you are new to mutual funds or have recently decided to start investing, you may find it difficult to make a habit of saving a fixed amount every month. However, to inculcate the discipline of regular investing, you can consider starting a SIP in equity mutual funds.
What is SIP? Is there any other way to invest in mutual funds?
Those who are new to investing in mutual funds might not be aware that SIPs are considered a boon by experienced mutual fund investors. Earlier, the only way to invest in a mutual fund scheme was to make a lump sum investment. This means that one needs a huge capital at his disposal to invest
Mutual Fund Schemes, Also, if you were investing in equity mutual funds, you would have exposed your entire investment amount to market volatility, that too from the very beginning of your investment cycle.
But since the introduction of SIP, it has now become possible for almost everyone to invest in mutual funds. This is because some fund houses offer investors a monthly investment amount of up to Rs. 500. A systematic investment plan is an investment process where retail investors can regularly invest a fixed amount in a mutual fund scheme of their choice till their investment objective is achieved.
Why should you start monthly SIP in Equity Mutual Fund?
There are many benefits of starting a SIP in Equity Mutual Funds. Here are some of them –
It is convenient to invest through SIP. All you have to do is to complete the pre-investment formalities and KYC documents. Investors can decide on a monthly SIP amount, as long as this amount is not less than the minimum investment amount stated in the offer document of the selected equity mutual fund scheme.
If you allow auto debit, a predetermined amount will be debited from your savings account on a certain date every month and electronically transferred to the chosen equity fund. This means that you automatically save a fixed amount every month as well as invest the saved amount for potential capital growth.
Those who start SIPs in equity schemes can benefit from an investment technique called rupee cost averaging. Since you decide the amount to be invested through SIP every month, the allocation of units may fluctuate depending on the fluctuating NAV of the equity scheme. When the NAV of the scheme is low, more units are allotted. Similarly, when the NAV of the scheme is high, fewer units are allotted. This adjustment of the allocation of units is referred to as rupee cost averaging and can reduce investment risk and allow mutual fund investors to benefit from falling markets.
Compounding works well with SIP investors with a longer investment horizon. It is a unique investment technique that can help you multiply your small SIP investment amount into a well appreciated corpus in the long run. When you earn interest on the amount invested in a mutual fund scheme, this interest starts earning interest of its own. This is known as the power of compounding and is ideal for targeting one’s long-term financial goals.
These were some of the reasons to consider starting a monthly SIP in equity schemes. However, it is better to consult a financial advisor before investing.
Mutual fund investments are subject to market risks, read all the documents related to the scheme carefully.