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Mutual Fund Daily SIPs: Do You Really Need It?

IndianMoney.com Research Team | Updated On Thursday, August 02,2018, 05:05 PM

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Mutual Fund Daily SIPs: Do You Really Need It?

 

 

 

SIP stands for Systematic Investment Planning. It is a method of investing in Mutual Funds. SIPs in general, encourage investing in a disciplined manner.. Mutual Fund houses have introduced daily SIPs. Such SIPs also cut worries on market volatility and timing.

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Mutual Fund Daily SIPs: Do You Really Need It?

 

Steps of investing in a mutual fund:

 

  • The first step of investing in a mutual fund is to do an extensive research. Learn about the various mutual funds and try to align them with your needs.
  • Analyze your risk profile.
  • Identify an ideal asset allocation mix. Asset allocation mix means spreading investments over a combination of instruments like equities, debts or a combination of both.
  • Start investing as soon as possible.

 

Should you invest in mutual funds directly or through SIP?

 

What is the ideal method of investing in a mutual fund? It is better to start investing in mutual funds through SIPs, rather than lump sum investments. If you have a lump sum, you can invest in liquid funds and start a Systematic Transfer Plan (STP) to equity funds. 

See Also: Benefits Of Systematic Transer Plan

What is an STP?

 

Through an STP, you authorize a mutual fund, to transfer a certain amount or switch certain number of units, from one scheme to another scheme of the same mutual fund house. This is done periodically and you can decide the time intervals of the transfer.

 

Types of SIP:

1. Top-up SIP:

 

A top-up SIP allows you to increase the amounts at regular intervals. This lets you take advantage of a well performing mutual fund scheme by increasing the amounts of contribution. If you get a salary hike, you can increase your SIP amounts.

 

2. Flexible SIP:

 

In a flexible SIP, you are free to increase or decrease the SIP amounts as per your convenience. If you get a raise in salary, you may increase your SIP amounts. If you face a cash crunch, you can skip or pause your SIP payments, till you get in  better shape.

 

3. Perpetual SIP:

 

A SIP is opened for a fixed period of time like a year, 2 years, and so on. If you do not enter the end date in the SIP mandate, it is deemed to be a perpetual SIP. Therefore, you may redeem the fund, whenever you like or when your financial goals are achieved. 

 

4. Trigger SIP:

 

Trigger SIP is suitable if you have knowledge and awareness on financial markets. You schedule your investments either at an index level, NAV, event or a date. It encourages speculation.

 

How good are daily SIPs in Mutual Funds?

 

As the name suggests, daily SIPs involve investing a fixed amount in mutual funds on a daily basis.

The industry SIP book has a volume of Rs 7,200 Crores on a monthly basis and it is growing rapidly. SIP money via Domestic Funds (DII’s and retail investors), fills the void caused by the exit of Foreign Institutional Investors (FIIs) by pumping money into equities.

Daily SIPs help in averaging investment costs; you also earn higher returns. This is because of the quantum of transactions over the period. 

The basic nature of the equity market is volatile. Hence, it is very difficult to time each move in line with the market. In fact, you should study the market first, only then you will be in a position to predict market movements. Therefore, what can teach you this better than a daily SIP?

Daily SIPs average out the market, hence you do not have to worry about the timing of your move.

 

SEE ALSO: Ways To Save Money On A Tight Budget

 

Merits and demerits of daily SIPs:

 

Demerits:

 

  • You will have to track your investments on a daily basis.
  • You will have to monitor a lengthy bank statement.

 

Merits:

 

  • It’s best for investors who want to actively participate in the market on a daily basis.
  • It is great for investor investors who wish to trade in the equity market.
  • Daily SIPs are cost-effective. Even investors with less income can invest it.
  • It is ideal for investors with limited knowledge and time.
  • It averages the market volatility.

 

Of all the asset classes, equity is the only one which can beat inflation. Indian investors are no longer hesitant of investing in mutual funds. Product recategorization of mutual funds has made mutual funds investor-friendly.

 

Be Wise, Get Rich.

 

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