Systematic Investment Planning through Mutual Funds

FinanceTrading / Investing

  • Author Mike Fullerton
  • Published September 15, 2009
  • Word count 622

Investment & Financial planning are interchangeable terms that are associated with your personal business ventures. Investments are easier to make when the person concerned has a knack of saving money. Systematic Investment Planning (SIP) is critical is garnering high profits in the longer run. Investing through Mutual Funds, though considered risky provides large capital gains and is responsible for fulfilling long term financial goals. From Mutual Funds point of view SIP helps you save money on a regular basis. A small amount is to be deposited every month on recurring basis till that particular fund cycle ends. If an investor wants to invest on a recurring basis, a systematic investment plan (SIP) is a good option. Its long duration helps to reduce the impact of bull and bear phases.

There exists a misconception with amateur investors who consider SIP to be a kind of a Mutual Fund. Technically speaking a Systematic Investment Plan is not a Mutual Fund, rather a way to invest upon it. There are a couple of ways that you can invest in a Mutual fund; one is a one time payment and the other through periodic investments. The later is termed to be Mutual Fund SIP. It is more of an investment mode rather then an investment avenue as many point out. An average investor opting for Mutual Fund Investments via Mutual Fund SIP invests in small amounts at regular intervals instead of a lump sum payment. In this case he is benefited by escaping the volatility that exists in Stock Markets by lowering the average purchase cost. Since the investment amount for each SIP installment is fixed, the investor gains by receiving a higher number of mutual fund units, assets collectively termed as Mutual Fund NAV (Net asset value).

Investing through Mutual Fund SIP disciplines your investment attitude. Often lack of discipline has been citied as the major reason for failing to reach long term financial goals. Amount that is saved aside for investment purposes gets spent on unnecessary things hence canceling the investment. Also high amounts are another cause of worry. With a SIP the investment amount is low and periodic, hence making the entire process easy. Another important aspect during investment is timing. How long you keep investing doesn’t matter, when you invest does. Timing the market is critical and through SIP you keep investing at regular intervals which makes it all the more possible to have the amount invested at the right time. Simply investing will also not count if you are not aware of the assets that you are investing on. Through Equity Research along with correct asset allocation is to be done prior to investing in Stock Markets. Opting for the guidance of a fund manager helps.

Mutual Fund Investments are always considered to be risky. Hence opting for the correct assets do help. Say your investments is diversified into 3 classes, if either of them suffers a loss you will have the other two assets on whom you can bank on to equalize your return. Diversifying your portfolio as much as possible helps. The last year recession did make the stock market in India go volatile. As of now the best Indian Mutual Funds that could be invested on are 1) Franklin India Blue Chip Fund, 2) HDFC Equity, 3) ICICI Power Prudential, 4) Fullerton India Mutual Funds, 5) Sundaram Growth (Data from genuine resource). Almost every other advertisement reads "Mutual Funds investments are subject to market risk, please read the offer document carefully before investing." It is imperative that you conduct a thorough analysis on the fund you are investing upon. It’s past performance (3 years) should tell a lot. Overall if you tread properly prior to investing in Mutual Funds, you could reap handsome rewards.

Investment Planner and Mutual Fund Manager for a leading Brokerage Firm in India. To read more about Mutual Funds in detail click here.

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