Mutual funds have recently risen to the top of the list of investing options among various investors. It can accommodate a wide range of clients with varied risk appetites and investment horizons by offering the opportunity to invest in equity, debt, and hybrid funds. Additionally, investors have a great deal of flexibility with mutual funds regarding the amount they wish to invest.
How much can be invested in a SIP at a minimum?
Most Indians are unaware of the minimal amount invested in mutual funds. They frequently believe they need large sums of money to begin, which keeps them from investing. This is untrue, though.
Although the minimum investment amount varies depending on the Asset Management Company (AMC) and the SIP in which a potential investor wishes to invest, it typically falls between Rs. 500 and Rs. 5000. However, some domestic mutual funds even permit a minimum investment of Rs. 100 to draw investors who are looking to invest smaller sums.
Benefits of Systematic Investment Plan (SIP)
Consistency and order: When you agree to a systematic investing plan, you promise to invest money on the most convenient terms. Conveniently, the automated debit prevents you from allowing your behavioural biases to rule during market ups and downs.
Power of compounding: This straightforward mathematical idea enables investment returns to grow. When you invest in a SIP, you receive interest (returns) on your initial investment. However, if you continue to invest, the power of compounding allows you to profit from your initial investment and any future returns.
Rupee cost averaging: An SIP enables you to profit from all market levels instead of trying to time the markets and looking for chances to purchase cheap and sell high. You buy more fund units at a lower price when the market declines and fewer units at a high price when the market rises. The average cost of your SIP investments decreases as a result over time.
Expert management: Mutual fund investments are overseen by knowledgeable fund managers who assist a group of competent research analysts. You can benefit from experienced management when you invest in mutual funds through a structured investment strategy.
How does SIP work?
SIP investing is simple. Following your selection of the mutual fund scheme in which you wish to invest, the following information must be specified:
- The sum you wish to deposit via SIP
- The frequency of your investments: biweekly, monthly, or quarterly
Let’s say you decide to invest Rs. 5000 each month. Now, Rs. 5000 will be deducted from your bank account every month, and Rs. 5000 worth of units will be purchased in the mutual fund plan of your choice. When markets are weak, the Rs. 5000 SIP will buy more units; conversely, it will buy fewer units when markets are strong. By doing this, you can engage in the market at all levels and bring down the average price of a product.
Will the minimum investment decrease at this point?
It indeed might, and the pattern is clear. For instance, some funds provide weekly and daily SIPs with significantly lower investment minimums. By establishing micro-SIPs with a minimum SIP sum of Rs. 100, the mutual fund industry has similarly targeted the rural sector. This makes it possible for these dispersed investors to invest in regulated companies and safeguard their money.
How to choose a SIP?
- Determine your objectives: You may have a variety of goals, some of which you may wish to accomplish within the next year (short-term), some in the next two to five years (medium-term), and others in the following five years (long-term). Long-term objectives are typically best suited for systematic investment plans.
- Determine the amount you want to invest: Decide how much you can comfortably invest after paying all of your expenditures before determining the amount you wish to invest.
- Choose investment intervals: Choose whether to do a monthly, quarterly, or fortnightly SIP.
- Select the fund: The mutual fund scheme you decide to invest in should help you attain your goals in your preferred time frame.
In the past, it has been seen that investors who can commit to mutual funds for a long time have the best returns. The optimum SIP amount should be chosen to enable the investor to continue investing for a long time without running out of liquid funds.