A mutual fund is an investment vehicle for pooling funds from investors sharing a common investment objective. What fund houses / AMCs do is that they collect money from investors who share a mutual investment objective and invest this pool of funds (known as the mutual fund) on behalf of these investors across the Indian economy. Mutual funds are professionally managed funds, where the fund manager buys / sells securities in accordance with the scheme’s investment objective. The money is invested across multiple asset classes like equity, debt as well as in money market instruments like commercial papers, call money, government securities, corporate bonds, etc. depending on the scheme’s natureand its risk profile.
If you have decided to invest mutual funds to target your life’s financial goals, investors should understand that there are multiple ways to invest in these market linked schemes. The original way to invest in mutual funds is by making a one time lumpsum investment. However, if you wish to inculcate the discipline of regular investing then you can start a SIP in mutual funds. Systematic Investment Plan is an easy and hassle free way of investing in mutual funds. All an investor has to do is complete all the pre-investment formalities and decide on the investment amount. After this, a fixed amount is debited at fixed intervals from the investor’s savings account and electronically transferred to the fund.
If you are unsure about how much money you need to invest at regular intervals in order to get closer to the desired target, you can refer to SIP calculator, a free online tool that can help investors get an approximate on their capital gains.
If you are new to mutual fund investing, you should know that there are four different ways in which you can initiate SIP investment. These multiple SIP investment options are currently available for retail investors; however, they should first speak with the mutual fund house to discuss availability of these different types of SIP.
Investors who are have irregular cash flow and flexible SIP helps such investors by allowing them to increase or decrease the monthly investment amount depending on their financial situation. This is probably the best SIP investment option as one can increase their monthly SIP investment amount depending on the performance of the scheme and their rising monthly income.
If you are someone who has been investing in mutual funds for a while and understand how fluctuating markets affect their performance, then you can consider starting a trigger SIP. Anyone who is new to investing should try and avoid this type of SIP investment.
Perpetual SIP is a type of SIP that investors can use to to target their long term financial goals. With perpetual SIP, retail investor can continue investing in mutual funds via SIP for as long as they want. There’s no termination date on perpetual SIPs which means that investors may continue investing till their investment objective is achieved.
Top up SIP
If the mutual fund you invested in is performing well and you want to increase the amount you are paying at systematic intervals, then some fund houses the option to top up that SIP amount. This type of SIP investment is referred to top up SIP.
These are some of the different types of SIPs available for investors. However, one should only invest in mutual funds after consulting their financial advisor. Mutual fund investments do not guarantee capital appreciation. Theirs is a good chance of losing your invested amount if you invest beyond your risk appetite. Make sure that you invest only if the scheme holds the potential to help you with your investment objective.