24th April 2024

What is the right amount to Invest in SIP Mutual Fund?

Those who are new to investing, they need to understand it is essential to first discuss your financial goals (both short term and long term) with your financial advisor before investing. There are end number investment schemes to choose from. Goal based investing is always a good idea because when you start investing keeping a life goal in your mind, there is very little chances of anything hampering your investment strategy. There are several investors who believe investing in mutual funds is better than investing in stock market as well as better than investing in conservative schemes.

That’s because mutual funds are a pool of professionally managed funds that offer active risk management. Depending on the investment scheme and its risk profile, a mutual fund may in a diversified portfolio of securities such as company stocks, gold, debt instruments like certificate of deposits, G-sec, commercial papers, call money, debentures etc. Market regulator SEBI, (Securities and Exchange Board of India) in their circular define mutual funds as “a mechanism for pooling the resources by issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in offer document. Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is reduced.”

The objective of every mutual fund scheme is earning capital appreciation over the long term and minimize risk by investing in a diversified portfolio of securities. Also, every mutual fund scheme has an underlying benchmark that it must beat or outperform. The performance of a mutual fund scheme is known to highly depend on the performance of its underlying assets and the various sectors and industries in which it invests.

What is Systematic Investment Plan

Those who are already investing in mutual funds must be aware of the fact that have the choice of either making a onetime lump sum investment or they can start a SIP. If you have surplus amount sitting idle in your savings account that your recently inherited you can consider investing it in mutual funds. Investors who invest in mutual funds by making a lump sum investment usually end up exposing their entire investment amount right at the beginning of the investment cycle.

On the other hand, if you wish to inculcate the discipline of investing regularly and do not wish to invest the entire investment corpus right from the start, you can consider starting a SIP in mutual funds. Systematic Investment Plan (SIP) is an easy and hassle free to invest in mutual funds. Investors can also refer to an online SIP calculator in order to determine how much money they need to invest regularly in order to get closer to the targeted corpus. Investors can also stop SIP investment mid way and do not have to pay any penalty which is the case with most traditional schemes. It is the best for anyone to get an idea about how the stock market works because the performance of some funds like equity schemes tends to fluctuate daily depending on how their underlying assets perform at the exchange.

What is the right amount to start a SIP in mutual funds?

Investors are expected to consult a financial advisor, discuss their goals, investment horizon and appetite for risk in order to understand how much they need to invest in mutual funds via SIP. Do remember that the SIP amount that you choose should be such that you are able to comfortably invest that amount every month without feeling cash crunch. If you are skeptical at first, start with a small amount and once you understand the investment mechanism and are more confident about the scheme you have chosen, you can increase the monthly SIP investment amount.

Mutual fund investments do not guarantee returns but if you invest in mutual funds via SIP and keep a long term investment horizon, you might succeed in wealth creation.