Systematic Investment Plans (SIP) in Mutual Funds

Mutual fund is one of the best solutions for the investment of your money safely and earning higher profits at the same time. This is a discussion of personal financial planning.

Tips On Mutual Fund Investment

In the emerging world, it is not wise to spend all the income which one earns. We need to set aside a significant portion for future financial needs including medical expenses, educational expenses, family needs and retirement needs. A well calculated financial plan is needed for every individual. While planning the finances, the best solution for financial investments is mutual funds.

Mutual funds are managed by a research team. This team may consist of professionals who study about the performance of the companies and the market trends. They make decisions to improve their products and increase the profit of their customers as well. This reduces the risk of investing directly in the share market. Moreover, it does not demand time in the form of studying the companies from the side of the investor. What ever study is needed is done by the mutual fund team.

Different types of mutual funds which concentrate on security, profit etc are available in the market today. Major types include growth fund, income fund, balanced fund, tax saving schemes etc. Funds are available in open ended and close ended types.

Investments in Mutual funds can be made in two ways.

  • One time payment

  • Systematic Investment Plans (SIP)

Lump Sum Payment

In one time payment, the investor needs to invest a fixed amount to buy a particular number of units. For example, at the time of the initial public issue the shares may be of value Rs.10 per unit. So if the investor decides to invest Rs.20000/- to that fund, he can buy 2000 units of that particular fund.

Systematic Investment Plans

In systematic investment plan, investments are made in periodic investments.Here one can opt for a regular investment of a fixed amount every month. The investment can be done with the help of cheques drawn on a bank, or by ECS-Electronic Clearing Service from the bank account of the investor. The date for ECS can be chosen by the investor, from the number of options available in the application. The duration of ECS can be fixed at the time of investment. For most schemes the minimum amount for each installment is Rs.500/-. However there are schemes which offer installments of Rs.100/- onwards.

If a person decides to invest Rs.1000/- each month. He will not have the burden of investing Rs.20000/- at a time. More over, during one month, the NAV would be Rs.11/-per unit and during the next month it may be around Rs.8/- per unit, so the investor will be able to buy more number of units than if he had paid a lump sum amount. This enables him to buy more than 2000 units by investing the same Rs.20000/-

Generally, SIP helps in buying more units thereby, increasing the profits. It is good on small scale investors who do not want to invest the whole fund at a time. Best for salaried persons.

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