SIP in debt mutual funds
Financial planning is essential to achieve long term financial goals like retirement corpus or buying your dream home. When you know your goals, investment planning becomes simpler. You are able to implement a strategy that will help you plan your finances in a better way. The best way to make a financial plan is determine your short term and long term and goal and prioritize according to your financial needs.
There are several investment options to choose from and investors depending on their risk appetite should decide where to invest. For example, if you are someone who has zero risk appetite and fear losing your finances to market volatility, then you have the option of sticking to conservative investment schemes. However, such schemes offer low fixed interest rates. Hence, if you have long term goals like accumulating wealth or building a retirement corpus, these investments may or may not help you achieve that goal. On the other hand, investors who have a long term investment horizon, wish to give their investment portfolio a slightly aggressive approach, and do not mind investing in market linked schemes that do not offer fixed returns, you can consider investing in mutual funds.
What is a mutual fund?
This is what SEBI, the regulator of commodities and securities in India has to say about mutual funds –
“Mutual funds are a mechanism for pooling the resources by issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in the offer document. Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is reduced. Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at the same time. Mutual fund issues units to the investors in accordance with the quantum of money invested by them. Investors of mutual funds are known as unitholders.”
What fund houses do is that they collect money from investors sharing a common investment objective and invest this pool of funds across the Indian economy depending on the nature of the scheme. The money is invested across multiple asset classes like equity and debt among others.
What are debt funds?
Debt mutual funds invest in fixed income securities like corporate bonds, government securities, call money, debentures, certificate of deposits, etc. Debt funds can be considered by those who carry moderate to low risk appetite.
SIP in debt funds
Debt funds offer multiple investment options for investors – they can either make a lump sum investment or they can opt for a debt fund SIP. If you have surplus cash with you that is sitting ideal which you feel can be used for investment, you can go with the one time payment. In lumpsum investment, investors make the entire investment in debt funds at the beginning of the investment cycle.
On the other hand, a Systematic Investment Plan (SIP) is an easy way to invest in debt funds. With SIP, one can even invest in debt mutual funds using their smartphone or laptop. But you need to be a KYC compliant individual and also need an internet connection to set up a SIP in debt funds online. Investing in debt funds through mutual funds has its own advantages. If you are new to investing and wish to inculcate the discipline of or saving regularly, a SIP might help you in doing so. SIP gives investors the liberty to invest small amounts at regular intervals instead of making a lump sum investment. When the NAV is low, investors are allotted more units and when the NAV of a debt fund is high, lesser units get allotted. This is referred to as rupee cost averaging and is only possible through SIP investment.
Mutual fund investments are subject to market risks, read all scheme related information carefully.
