Mutual fund investments are quite attractive as they offer attractive returns as well as risk diversification through a varied portfolio. Moreover, mutual funds are managed professionally ensuring that the portfolio invests in the best stocks and gives you the best returns. However, mutual funds are risky investments since they invest in securities of the financial market. So, for first-time investors, investment in mutual funds should be done with careful consideration.
In fact, for first-time investors SIPs should be the most preferred mode of investment. SIP stands for Systematic Investment Plan and it involves investing in mutual funds in regular instalments rather than in lump sum. These instalments are usually done monthly at a fixed amount for a specified period of time. You, as the investor, choose the investment amount, date of investment and the period of investment thereby having complete flexibility in planning and managing your investments.
Let’s have a look at why SIPs are the ideal investment modes for first-time mutual fund investors –
The best way to test the waters
When you invest through SIPs, you can start small rather than investing a lump sum amount. Through small and regular investments you can slowly ease into the habit of investing in market-linked securities. You can experience the risks associated with mutual fund investments on a small part of your money rather than on a considerable amount. This helps you to understand the workings of mutual fund schemes and the financial markets as a whole. You can, therefore, test the waters of market-linked investing without too much exposure when you choose to invest through SIPs.
Ease of investing
SIP investments are very easy. You can pick a mutual fund scheme of your choice and invest in SIP online. The minimum amount required to invest in SIP online is Rs.500 which you can easily invest without straining your finances. Thus, SIP investments are simple, easy and convenient through the online mode and can be picked by both small and large investors alike.
Inculcate a disciplined habit of savings
A disciplined habit of saving is required if you want to create wealth for your financial goals. SIPs are the best way to learn this discipline since they require you to invest regularly at a fixed date. As you start investing in SIPs, you can learn the art of disciplined investments which would help you create a considerable financial corpus in future as you build your financial portfolio.
As you invest in SIPs every month, your investments get accumulated into a corpus and earn compound returns. This compounding of returns helps you build up a considerable corpus with small investments done over a long term period. For instance, if you invest a meagre Rs.5000 every month into one of the best SIP plans offering an average return of 12% per annum, your corpus would grow to Rs.49 lakhs (rounded off to the nearest lakh) within 20 years. Thus, when you are a first-time investor, you can start small and still build a considerable corpus through regular SIP investments.
Rupee cost averaging
As a first-time investor you might not be conversant with market movements. As such, timing the market for the right time to invest might prove to be a challenging task. SIPs help you over this challenge as they give you the benefit of rupee cost averaging. SIPs invest in the mutual fund scheme on a fixed date and the NAV of that date is considered for allocating the units. This way, you get different NAVs every month which averages out the effective NAV of your investment. Thus, whether the market is bullish or bearish, you get the average NAV of different cycles which helps in minimizing volatility risks.
So, these reasons make SIPs the best choice for first-time investors. To invest in SIP online you can choose ETMONEY.com which is the best personal finance platform for your investment-related needs. On this personal finance platform you can find the best SIP plans of all types of mutual funds which would give you the best returns. So, as a first-time investor you should pick SIPs for investments and to find the best SIP plans pick ETMONEY.com which is the best personal finance platform.