Mutual funds are a pool of professionally managed funds where the fund managers allocate assets in money market instruments in such a way that in the long run, these investments are able to offer exceptional returns. A mutual fund is known to invest in a diversified portfolio of securities. One single unit of a mutual fund is a combination of multiple stocks and other equity related instruments. Depending on the nature of the scheme and its investment objective, a mutual fund may invest across various money market instruments and asset classes like equity, debt, gold, real estate, call money, company fixed deposits, G-sec, etc.
Mutual fund investors are allotted units in quantum with the investment amount and depending on the fund’s existing NAV (net asset value). The performance of a mutual fund scheme will highly depend on the performance of its underlying assets and the various sectors and industries in which it invests.
In earlier times, Indian investors did not have any option but to expose their entire mutual fund investment amount by making a lumpsum investment. Ever since the introduction of SIP, it has now become possible for investors to invest small amounts at fixed intervals. Systematic Investment Plan or SIP is an investment tool where one can invest an amount as low as Rs. 500 per month and earn capital appreciation over the long term. All an investor has to do is complete their KYC formalities and they can start investing in mutual funds via SIP from the comfort of their home or office using a smartphone or a laptop with a decent internet connection. That’s right, you do not have to personally visit the fund house to making an investment like you have to do for bank FDs or other conservative schemes.
Here’s an example of how SIP works –
If you want to invest 12 lakhs in an equity scheme but do not have that much capital ready, you can invest Rs. 10,000 for a period of 10 years via SIP and gradually build your mutual fund corpus. Also, every month as the scheme performs, your invested amount will continue to earn interest. Imagine the returns you will earn on the Rs. 12 lakhs that you invest. Investing in mutual funds via SIP can help investors earns some serious corpus.
If you really wish to see your money multiply and turn into a large commendable corpus then make sure that you remain invested in mutual funds via SIP for as long as possible. Historically, mutual funds like equity funds have offered exceptional results when held for the long run. If possible, invest for a minimum period of 15 years in mutual funds via SIP if you really want to see the power of investing in mutual funds via SIP.
Investors can also refer to SIP calculator a free online tool where you can put the monthly SIP amount that you can afford to invest at regular intervals and also input how many years you wish to continue investing in that particular scheme via SIP. The SIP calculator will give you an estimate on the capital gains you can earn if you continue investing in mutual funds via SIP.
SIP investors tend to benefit from something referred to as power of compounding. Compounding in mutual funds refers to the interest earned on the interest earned from the principal investment amount. When the money you invested in a mutual fund scheme earns interest of its own, if you do not redeem the gains and allow them to get reinvested, these gains earn interest of their own. This continuous process of reinvestment is referred to as compounding and might help investors achieve a decent corpus over the long term.
You work hard to earn now invest in mutual funds via SIP and let the money do the hard work for you. If you are new to investing or mutual funds in general, consult a financial advisor.