KNOW WHY YOU SHOULD START SIP IN DEBT FUNDS

As soon as the term SIP (systematic investment plan) is mentioned, several individuals usually relate to equity funds. The reason behind that is usually an individual opts for SIP mode of investing when investing in equity funds. Why? SIP investments are ideal for long-term investment duration which makes them perfect for equity investments. However, this must not stop you from making an SIP investment in debt funds. Let’s explore the reasons why you must start a SIP in debt funds.

What is SIP?

SIP is a way to regularly and systematically allocate your funds towards mutual funds investments. The SIP mode of investment allows investors to invest a predetermined sum of money in their desired mutual fund schemes for a given period of time at regular intervals.

SIP in debt funds

If you are well-versed with the working of SIPs, you might already know that SIP investments require volatility in their assets to grow in value. Equity funds and debt funds have varying type of volatility associated with them. While equity funds portray uncertainty in the value of their investments, debt funds deal with volatility associated with stock markets.

The NAV (net asset value) of debt funds usually experience a stable rise. This is especially true for debt funds with short duration. As a result, these investment options are considered as a type of investment with low risk by several investors.

If you are a conservative investor, SIP in debt funds make sense for you. It helps to invest in debt funds in a systematic way. What’s more, predicting the returns earned of debt funds is far more easier than equity mutual funds. As a result, an individual can plan their investments in a better way.

How can SIP in debt mutual funds be helpful?

Debt funds are ideal for those conservative investors who have a short-term investment horizon of say one to three years. Some investors also use debt funds to cater to their balancing needs for long-term debt allocation to their investment portfolio.

If you are the first type of investor who has a short-term investment horizon, then you must first evaluate the estimated SIP investment amount needed to achieve your goals. You can easily calculate this using an SIP calculator. Just enter your desired investment corpus, investment horizon, estimated average returns of your mutual fund schemes, and press enter. You will get the estimated SIP investment amount  needed to achieve your short-term financial goals.

On the other hand, if you are the second type of investor who wishes to invest in debt funds to cater to their goals such as balancing the risk of their investment portfolio or creating an emergency corpus, them SIP in short-term debt funds or liquid funds would be preferred.

Investments in mutual funds must be made after careful analysis of the markets and your needs. As an investor, you must ensure that your investment objectives are aligned with that of the mutual fund scheme you decide to invest in. Happy investing!