Unless you’ve been living in the remote peaks of the Himalayas for the past decade, you’ve heard of mutual funds and systematic investment plans. You can’t turn on the television without seeing some advertisement or some mention of SIPs.
And with good reason, of course!
SIPs are growing by leaps and bounds because they are one of the best approaches to investments. They are easy to fit into our lives, they help us save consistently and they provide excellent returns. That’s the holy trinity!
What more could we possibly want?
Let’s take a look at some of the benefits of investing in mutual funds in 2023.
Benefits of Mutual Fund SIP
Start with as low as Rs 100 per month.
Most of us get inspired to try investing for the first time when we hear stories of other successful investors. It may be famous market experts or it may be someone you know on a personal level.
After all, who wouldn’t get inspired by Warren Buffett or Rakesh Jhunjhunwala?
However, most of us don’t have access to a lot of money to start with. I mean, we hear of investors making crores every day. But don’t you need crores to make crores?
Not with systematic investment plans in the best mutual funds.
Now, you can start your monthly SIP with even just Rs 100!
Build up a sustainable saving habit.
It is not easy to save.
Don’t get me wrong. You can probably save for a month quite easily. But anytime there’s a lot of loose cash lying around in your bank account, it is always an incentive to start spending. It’s basic human nature. We are consumerists at the core.
So, to ensure your savings remain untouched, you have to move it out of your bank account. In fact, it is smart financial planning to maintain two separate bank accounts — one for your regular transactions, and another one for savings and investments.
Mutual fund SIPs are designed for maximum comfort. On a date of your choosing every month, the fixed amount that you want to invest will be debited automatically from your account.
In other words, your monthly savings will be safe, secure and out of reach when the urge to shop strikes!
Enjoy the benefits of rupee cost averaging.
Everyone knows the stock market is characterized by volatility. Prices go up and down all the time. And unless you’re an expert, it is very hard to tell whether the price will rise or fall after you buy.
The advantage of regular investments at fixed intervals is that, over time, you get an average price. In other words, the effects of the market volatility get canceled out. This is very useful for long-term investments.
Things to Know Before Starting Mutual Fund SIP
Finalize your investment goals.
Don’t start a SIP randomly. Put some thought into it.
What are you saving for? What kind of return are you hoping for? What kind of risk are you comfortable with?
An excellent method is to settle on an expected amount and then work backwards to calculate how much you need to invest every month. You can make sure of a SIP calculator to figure it out.
A SIP for every need.
You will have multiple goals when you start planning your finances. You might want to save up for a house or a car or even a foreign trip. Apart from this, you’ll want to build up a corpus for retirement as well as one for a backup safety net.
How can you keep track of all this and incorporate it into your saving goals?
Can you imagine how complicated that would be?
Well, to simplify things, people often start a different SIP for every saving goal. Separating the goals helps fix amounts and limits, and make a comprehensive plan!
How to Choose a Mutual Fund SIP in 2023
For this purpose, let us consider the three main categories of mutual funds — equity, debt and hybrid.
Top Performing Equity Funds in 2023
Equity funds, as the name suggests, invest the majority of the corpus in equity shares of different sectors and companies. These funds are risk-loving in nature and also provide the highest returns.
There are multiple varieties of funds within the equity category. From index funds to flexi cap, from blue chip to ELSS, the options are vast. Choose one that makes sense for you.
There are a few things to keep in mind while selecting the best equity fund to invest in. Ask yourself these questions. How much risk are you willing to take? How long are you willing to stay invested? What purpose are you investing for?
The answers to these questions will determine what category of equity mutual funds you select.
Top Performing Debt Funds in 2023
Unlike equity funds, debt funds invest the majority of the fund amount in debt securities or fixed-income securities. These can include short-term instruments like treasury bills or certificates of deposit. Or, they can also include long-term instruments like government and corporate bonds.
Please note, the risk element is much lower than equity. But, the return rate is also much lower. Debt funds are known for their security and stability, not for their aggressive returns. They will provide you with some breathing room, especially at times when the stock market is volatile.[3]
When it comes to debt funds, it is all about the issuer. The government of India, for instance, is considered to be the most reliable borrower in the Indian markets. Your friend can take a loan from you and run away. But the govt will never do that.
The return on the government bond is therefore known as the risk-free interest rate in the market. It is the baseline. Corporate bonds offer a risk premium on top of that for the additional risk burden.
Top Performing Hybrid Funds in 2023
Hybrid funds offer the best of both worlds. They are quite a balanced mix of equity and debt. These funds are meant for risk-neutral investors — those who want decent returns with some element of stability in their portfolio.
Because of their stable approach, hybrid funds have a place in almost everyone’s portfolio. You can choose the kind of asset allocation you want, depending on your investor profile. For example, if you’re open to taking some risk, you can go for an aggressive or an equity-forward hybrid fund. On the flip side, if you want low risk, you can select a conservative or debt-forward hybrid fund.
Disclaimer: This blog has been issued on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this document is for general purposes only and not a complete disclosure of every material fact. The information/data herein alone is not sufficient and shouldn’t be used for the development or implementation of an investment strategy. It should not be construed as investment advice to any party. All opinions, figures, estimates and data included in this blog are as on date. The blog does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. The statements contained herein may include statements of future expectations and other forward-looking statements that are based on our current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Readers shall be fully responsible/liable for any decision taken on the basis of this article.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
