Investors new to the investing world often build a perception towards SIP mutual funds that it is ideal only for equity investments. However, they cannot be more wrong. SIP or systematic investment plan can prove to be beneficial for debt funds as well.
In this blog, we will understand how SIP in debt mutual funds can turn to be valuable to investors. Let’s begin by quickly recalling what SIP investment is.
What is an SIP?
SIP is an investment tool offered to investors that allows them to invest in mutual funds in a systematic and disciplined manner. Under the SIP mode of investment, an investor allocates a predetermined sum of money towards their desired mutual fund schemes at regular intervals for a defined period.
SIP investments are quite flexible in nature – an investor has the liberty to choose the investment amount, investment date, periodicity of intervals, investment duration, type of investment, type of SIP, etc. What’s more – anyone can invest in SIP mutual funds as the minimum investment amount to invest in mutual funds through SIP is just Rs 100 per month.
SIP in debt mutual funds
Investors aware with the workings of SIP investments are well-versed with the fact that in order for their assets to grow in value, their SIP investments have to be exposed to some level of volatility. Different types of mutual funds have different levels of volatility linked to them.
The NAV or net asset value of debt mutual funds often witness a stable rise in their prices over time. This is truer for debt funds that have a short investment duration or Macaulay’s duration. This is why conservative investors with a low-risk appetite often consider this investment option to ensure that their investment portfolio is not exposed to high levels of risk.
Conservative investors looking to invest in relatively safer investment option can consider investing in debt funds through SIP mode of investment. Another reason why an investor may prefer debt funds over equity mutual funds is that it is easier to predict returns on your investments on these safe investment avenues. This will help individuals to plan their investments in a better way.
An investor can also consider using an SIP calculator to understand the future returns on their investments.
How can SIP investment in debt funds be beneficial for investors?
Debt mutual funds can be an ideal investment option for investors with a low risk profile and low investment horizon of say 1 to 3 years. Several investors also consider allocating their assets to debt funds to help them balance their long-term debt allocation in their investment portfolio.
Investors with a short-term investment horizon looking to invest in debt funds might consider to first evaluate their investment needs and determine the right investment amount required to reach their financial goals.
As mentioned above, this can easily be achieved through SIP return calculator. All one needs to do is enter certain investment details such as investment duration, desired investment corpus to achieve a particular financial goal, and the estimated average returns on their debt funds.
Finally click on enter. An voila, the calculator will do all the complex calculations for you and provide you with the minimum investment amount you must invest to reach a particular corpus in the desired duration. Happy investing!