A mutual fund is a pool of professionally managed funds that invest in a diversified portfolio of securities. Mutual fund houses collect money from investors and invest this pool of funds to achieve a common investment objective. A mutual fund can invest in a variety of money market instruments and asset classes. It all depends on the nature of the scheme, its risk profile and its underlying benchmark. It is the duty of the fund manager to help the mutual fund scheme outperform by executing an established investment strategy. People who are new or investing in mutual funds usually wonder when would be the right time to invest in mutual funds. Anytime can be the right time to invest in mutual funds if you start monthly
sip in mutual funds. A systematic investment plan is a new and convenient way to invest in mutual funds. You can invest in mutual funds through SIP to target your long term goals.
What is a Systematic Investment Plan?
Those who start a monthly SIP in mutual funds can invest small fixed amounts at regular intervals and gradually build up the desired corpus. For those who are new to investing, a systematic investment plan is one way to invest in mutual funds. The traditional way of investing in mutual funds is to invest in a lump sum amount. On the other hand, starting a monthly SIP in mutual funds can inculcate the discipline of regular investing. An investor just needs to be KYC compliant, complete all pre-investment formalities with their savings bank and decide how much they want to invest in the mutual fund scheme of their choice. Once you are a KYC compliant individual, on a specified date every month, a predetermined amount will be debited from the investor’s savings account and electronically transferred to the fund. Investors are free to continue investing in
mutual funds Through SIP till their investment objective is achieved.
What is Direct Plan and Regular Plan in Mutual Fund?
A direct mutual fund plan is one that can be purchased directly from the fund house owning that particular scheme. Investors can buy direct mutual fund schemes either manually by visiting a fund house or by visiting the fund house’s website online. An investor may not need to approach an agent or broker to invest in a direct mutual fund scheme. And since there is no third party involvement, the expense ratio of owning the fund is relatively low.
On the other hand, a regular mutual fund scheme can be bought from a third party aggregator or mutual fund agent or broker. There is no need to visit any fund house to buy a mutual fund scheme. They can buy it from a broker or mutual fund agent. However, since a third party is involved in selling the scheme, the fund house will have to pay a fee to the aggregator. This fee is recovered by imposing a higher expense ratio to the owner of the fund.
Is SIP investment good with direct plan or regular plan?
Whether you choose a direct plan or a regular plan, you need to understand the importance of starting a SIP in mutual funds. You can target long term financial goals of your life by starting monthly SIP. However, it is important to keep a long-term investment horizon while investing in mutual funds through SIP. However, since a regular plan has a high expense ratio, the capital growth you can earn at the end of your investment journey may be affected. A high expense ratio may seem minor at the time of investing, but it can take away a large part of the money you’ll accumulate at the end of your investing journey. SIP investments are also known to allow investors to benefit from the power of compounding and rupee cost averaging.
If you are not sure in which scheme you should start SIP, please consult a financial advisor or mutual fund expert before investing.
Mutual fund investments are subject to market risks, read all the documents related to the scheme carefully.