When you have income and some more of it – what would you do with it? In general, that money would either be saved or it would be invested – either one of that – it would come in handy for your financial standing. What is the better option, though? Is it saving, or is it investing? Most people would choose to save just because it has no risks at all. But, when you compare saving and investing – you know investments give you better returns. What if there was a method that you could use to do things better? That is, choose to invest and face no or very low risks in the long run. This is possible through mutual funds. Want to know more about it? Keep reading.
Now, in order to invest money in mutual funds, there are two main ways to do it – but before that, let’s set a foundation.
What are Mutual Funds?
A mutual fund is a type of investment instrument that combines investor funds and invests them in stocks, bonds, government securities, gold, and other assets. Companies that meet the requirements to establish mutual funds form Asset Management Companies (AMCs) or Fund Houses, which pool investor funds, market mutual funds, manage investments, and facilitate investor transactions.
Mutual fund schemes are typically managed by fund managers, who are competent financial professionals with experience in analyzing and managing investments. The monies collected from mutual fund investors are invested in various financial assets such as stocks, bonds, and other assets, as stated by the fund’s investment objective. Among many other obligations, fund managers are responsible for deciding where and when to invest.
In order to pay off these mutual funds – there are two ways that you will be given a choice.
Through:
- SIP or,
- Lump Sum
For instance, let’s say you choose some aggressive mutual funds with great returns. The mutual fund you choose would mostly have the option for SIP and for a lump sum. Here – we are going to be talking about – SIP mutual funds.
What are SIP Mutual Funds?
A structured Investment Plan, or SIP, allows you to invest a small quantity on a regular basis in your favorite mutual fund plan. When you activate a SIP, a certain amount is withdrawn from the bank account each month and is invested in the mutual fund of your choice.
A SIP, unlike a lump sum investment, allows you to spread your investment over time. As a result, you don’t need a significant sum of money to begin investing in mutual funds through SIPs. By investing through a SIP, you are obliged to set away a sum at regular intervals, which aids in the long run by instilling a feeling of financial discipline.
When you choose to invest in a mutual fund scheme through a SIP – you would be buying a particular amount of fund units that are equal to the amount that you invest. When investing through a SIP – you do not need to time the markets because you gain from both bullish and bearish market trends.
When the markets are low, you purchase more fund units, and when the markets are high, you purchase less. As the NAV of all the mutual funds is changed daily, the cost of buying may differ from one SIP installment to the next. The cost of buying averages out over time and becomes cheaper. This is known as rupee cost averaging. When you invest in a lump sum – you do not receive this benefit.
Which is the Best Date to Kick Start your SIP Mutual Fund?
First and foremost, everything depends on your suitability. But – here are a few attributes that you could consider:
1) The Best Day of Your Bank Balance
Most salaried investors have their paychecks deposited into their bank account in the first week of each month. Payment cycles for independent contractors may differ.
Similarly, the first week of the month does not ensure an influx of revenues for the self-employed, so they may select the mid-week or even the last week of the month for SIP investments.
SIP investments are often made by an auto-debit mandate from your bank account. This means that you ask your bank to pay the SIP on a specific date each month without requiring regular express authorization from you. To fulfill this auto-debit mandate, your bank account must have sufficient money to conduct the transaction successfully.
If the entrance of cash into your account follows a specific pattern, such as the beginning of the month for salaried employees, synchronizing the SIP date to this trend may be convenient.
Simply put, your SIP date should preferably be after the date you receive funds into your bank account, especially if you keep a minimum balance in your account. Inadequate money would halt your investment, causing you to miss out on the regularity of saves, affecting your long-term profits.
On the other hand, if you keep adequate funds in your bank account and do not need to rely on the inflow of funds, you can invest at any time.
b) Allocating Disposable Income
Another consideration is the availability of disposable income. After you receive your salary or your firm generates revenue each month, you may wish to prioritize your monthly costs over your investments. These are typically basics such as groceries, rent, utility payments, EMI, and fuel costs, rather than discretionary expenditures.
After that, you may be able to set away funds for investment. Choose a date after you have met your usual costs or have made adequate arrangements for them.
Mutual funds do not specify a certain deadline for SIP investments. It is up to you to determine the optimum date for SIP. That being said, each investment is unique, as is its financial situation.
As a result, you should select the SIP date after considering your suitability.
Conclusion
Well, if you are someone who is looking for a way to start small – then SIPs it is. But if you are unsure about when to start, how to get it done, and how it works – this article will have cleared it up for you.
