Mutualfunds are very popular in the western world but in India lot of people wonder what is Mutual Fund ?? Are Mutual Funds sort of investments?? Are Mutual Funds risky??
Well let us answer the above questions in a simple way. When lot of investors pool money and invest in stocks, bond money market instruments and other types of securities, this is called Mutual Fund. A MF is always better than investing directly. This is a simple and easy answer to what is a mutual fund?
Following are the advantages of investing in Mutual Fund:
Mutual Funds are highly regulated, SEBI (Securities and Exchange Board of India) lays down rules regulations, charges(expenses ratio), loads, etc. of Mutual Funds in India. The market regulator regularly monitors the AMC's(Funds and schemes as well). This is to ensure compliance and interest of retail investors.
Mutual Funds operates with high degree of professionalism. A good Mutual Fund will ensure it has a well qualified research team that takes well informed and prompt decisions.
Mutual Fund investor will have reduced risk in the portfolio. This is due to diversification as most Mutual Funds will invest in 30-200 securities. A good Mutual Fund will also increase and decrease the number of securities in the portfolio based on need and market conditions.
Mutual Funds are easier to buy and sell. An investors can choose an appropriate fund based on his need for capital appreciation, liquidity, financial objective and risk appetite. A well qualifies mutual fund distributor shall help you do that.
A Systematic Investment Plan or SIP is a smart and hassle free mode for investing money in mutual funds. SIP allows you to invest a certain pre-determined amount at a regular interval (weekly, monthly, quarterly, etc.). A SIP is a planned approach towards investments and helps you inculcate the habit of saving and building wealth for the future. SIP is not a financial instrument, but a way of investing in mutual funds, some people confuse SIP with PPF,NSC, and mutual funds. They think they can invest in SIP. SIP is not an investment its just a mode of investment.
How Does SIP Work?
A SIP is a flexible and easy investment plan. Your money is auto-debited from your bank account and invested into a specific mutual fund scheme.You are allocated certain number of units based on the ongoing market rate (called NAV or net asset value) for the day. Every time you invest money, additional units of the scheme are purchased at the market rate and added to your account. Hence, units are bought at different rates and investors benefit from Rupee-Cost Averaging and the Power of Compounding.Besides SIP is most beneficial if markets are volatile or going down after you invested. Normally investors fear a downtrend but sip investments in sliding markets give handsome returns in the long run. SIP is a simple concept and hence very powerful.
With volatile markets, most investors remain skeptical about the best time to invest and try to 'time' their entry into the market. Rupee-cost averaging allows you to opt out of the guessing game. Since you are a regular investor,your money fetches more units when the price is low and lesser when the price is high. During volatile period, it may allow you to achieve a lower average cost per unit.
How to Start SYSTEMATIC INVESTMENT PLAN (SIP)
Pick any date of a month, then fill out an SIP form and an application form.
Draw post-dated monthly / quarterly cheques , adding up to at least minimum investment of scheme.
Monthly - Start on any date of any month, and stick to the same date of every month.
Quarterly - Start on any date of any month, and stick to the same date of every third month.
If in any month the chosen date is not a Working Day, the transaction will be completed on the next Working Day.