The volatile stock market and the world of mutual funds see several ups and downs throughout the year. While risks are a part and parcel of investment, there are ways you can actually safeguard your money and be smart about making it work for you. For many, investing in mutual funds through Systematic Investment Plan (SIP) is a better option than by investing a lump sum. Women often complain about managing job and families and do not have much time to study markets to invest at the correct time. The best option for women is to invest through SIP where a fixed amount is invested at a regular interval of time.
TC46 connected with Abhinav Angirish, the founder of Invest Online to answer your burning questions about SIP investments. Here, he guides you through the effects of NAV, easy investment plans for 2021 and some key dos and don’ts for women investors.
1. What are SIP investments? What is the difference between SIP & Lumpsum?
Mutual fund investments can be made in two ways, lump sum or through Systematic Investment Plan (SIP). In lump sum investment, the investor makes a single payment towards the investment. This works well in the market that is on an upward trend. However, lump-sum investments in equity funds carry the risk of volatility. But make note, for debt investments, the market levels do not matter.
SIP, on the other hand, allows the investor to invest in a staggered manner at fixed intervals. SIP can be made on a daily, monthly, quarterly or semi-annual basis. SIP distributes the market risk and allows the investor to take advantage of rupee cost averaging. Thus, even in the falling market the investments continue and eventually reward the investors.
2. What are some vital things beginners should know about investing in mutual funds via SIP & how they work?
There is a quote: “A jug fills drop by drop”. It means that you can achieve investment success by taking little baby steps. SIP allows you to invest a fixed sum at regular intervals. SIP helps to inculcate discipline in investing. Another thing about SIP is that it helps to harness the power of compounding. Looking at the following table you can see that an investor who invests Rs 10,000 every month is able to generate decent returns.
| Investment Amount | Investment Date | NAV | Units Purchased |
| 10,000 | 02/04/2018 | 26.61 | 375.798572 |
| 10,000 | 02/05/2018 | 27.97 | 357.5259206 |
| 10,000 | 01/06/2018 | 28.39 | 352.2367031 |
| 10,000 | 02/07/2018 | 28.86 | 346.5003465 |
| 10,000 | 01/08/2018 | 30.57 | 327.1180896 |
| 10,000 | 04/09/2018 | 30.42 | 328.731098 |
| 10,000 | 01/10/2018 | 28.33 | 352.9827038 |
| 10,000 | 02/11/2018 | 26.96 | 370.9198813 |
| 10,000 | 03/12/2018 | 28.77 | 347.5842892 |
| 10,000 | 01/01/2019 | 29.06 | 344.1156228 |
| 10,000 | 01/02/2019 | 28.99 | 344.9465333 |
| 10,000 | 01/03/2019 | 28.87 | 346.3803256 |
| 125,719 | 15/03/2019 | 29.97 | |
| Total Amount Invested | 120,000 | ||
| Total Unit Purchase | 4194.84 | ||
| NAV on 15th March 2019 | 29.97 | ||
| Investment Value | 125,719 | ||
| Annual Return (CAGR) | 9.84% |
3. Is SIP safe? What are the benefits of investing in SIP vs Lumpsum?
SIP is perfectly safe. It helps to mitigate the adverse impact of volatility. The smaller investments also ensure that the investor gets the benefit of rupee cost averaging. During the downturn, SIP helps to accumulate more units of the same scheme thus reducing the cost of investments. The averaging out reduces the impact of volatility which in turn allows the investor to reach his financial goals easily.
4. Which SIP should we invest in 2021? What are some tips for those you wish to invest this year?
It is difficult to pin-point the exact fund. If one wants to invest he should consult a good financial advisor. It is essential to evaluate one’s financial goals and risk tolerance before investing.
However, equity markets often witness volatile periods. Hence, it is advisable to build a diversified portfolio. As far as 2021 is concerned, one can consider investing in equity funds, gold funds, and REIT. Once the effects of the present pandemic are over, the beaten-down real estate sector has the potential to bounce back due to increased business activity. The government, too, is taking positive steps to boost the economy. This will have a favourable impact on equity markets. Recently there has been a slew of launches of International funds. One can consider investing in them too.
5. What documents do you need to begin with SIP? What is the process that one has to follow?
SIP has become extremely popular among small investors. Many investors are still confused about investing through SIP.
Minimum documents are required to begin SIP investments. To start an SIP one needs PAN card, a photograph, address proof and a cheque book. The cheque book is required to provide bank details. The simplified procedure for SIP ensures peace of mind for Investor. The entire process can be completed online.
An investor also needs to be Know Your Customer (KYC) compliant. You simply should provide basic information like name, date of birth, mobile number, address, etc. This process has to be followed only once. After completion of KYC, an investor can invest in multiple schemes of mutual funds.
To complete the process of KYC one has to upload the soft copy of PAN card and address proof for verification purpose. Finally, after the video call, the KYC procedure is complete.
One can even use AADHAR to complete eKYC. However, if you are using eKYC you can invest only up to Rs 50,000 per year per fund house.
6. Which financial goals are best suited for SIPs? How can women make the best of it?
SIPs can be used to meet short, medium and long term financial goals. An investor can set up several SIPs according to his goal. Different SIPs can be set up for equity, debt, gold funds or international funds. Thus, with the help of SIP, an investor can put up a financial plan in place that not only protects his or her portfolio but also helps to fulfil various goals.
The following illustration helps to understand financial planning for women.
Anita Shrivar, aged 28, is a software engineer with a reputed company. She has plans to marry next year. Since Anita has very limited knowledge of modern financial instruments, she prefers to invest in traditional saving instruments like bank fixed deposits and insurance.
The present net take-home salary of Anita is Rs 55,000 per month. The break-up of her expenses are as follows:
| Household Expenses | Rs 20,000 |
| Personal Expenses | Rs 13,000 |
| Insurance Premium | Rs 2,500 |
| Petty Cash Expenditure | Rs 7,000 |
Anita Shrivar’s investing goals are as follows:
| Goals | Present Value | Target Value | No. Of Years | SIP Amount | Lumpsum Amount |
| Marriage | 3,00,000 | 3,21,000 | 1 | 1656 | 18,750 |
| Buying a car | 4,00,000 | 4,57,960 | 2 | 2149 | 46,205 |
| Education of the child | 3,00,000 | 11,60,905 | 20 | 840 | 89,247 |
| 3,00,000 | 11,60,905 | 21 | 764 | 79,685 | |
| 3,00,000 | 11,60,905 | 22 | 671 | 71,147 | |
| 3,00,000 | 11,60,905 | 23 | 590 | 63,524 | |
| 9,00,000 | 45,65,130 | 24 | 2213 | 2,41,466 | |
| Retirement | 5,00,000 | 53,38,591 | 35 | 2575 | 2,84,622 |
Anita spends Rs 42,500 of her salary. Out of the balance of Rs 12,500, she can invest Rs 11488 to fulfil her financial goals. Since Anita is young, she can choose to take a risk and invest in equity mutual fund. This will help her realize her short, medium as well as long term goals with ease.
The above example shows that good financial planning helps to meet financial goals with ease. It also ensures security and peace of mind. Smart investing helps to build quality assets that can enable one to live a stress-free life.
7. Should you base your fund’s selection on Net Asset Value (NAVs)? What are some key dos and don’ts?
Net asset value(NAV) is the value of a fund’s asset less the value of its liabilities per unit. While investing, investors try to buy cheap and sell at a high price. But this does not apply to mutual funds. High NAV has got a bad rap from investors, but contrary to popular belief the funds with high NAV are not considered as expensive. The low NAV can get you more units but it does not mean they will perform just because they are available cheap.
While investing in mutual fund performance is the key. A fund having a quality portfolio will tend to do well and would command high NAV. It is wrong on the grade the funds on the NAV parameter alone. While investing it is important to remember that the fund’s investing style must compliment your financial goals. Websites like Invest Online have tools that enable you to view the quality of the fund’s holdings.
8. How can you choose between direct and regular plan, and the growth and dividend option?
It is true that direct plan has a lower expense ratio compared to a regular plan, and this is because the investor can purchase the units directly from the fund. If we calculate the impact in equity segment, the impact or the savings amount to 0.5%. So if you are investing Rs. 5,000 per month you would be saving just Rs 25 per month. But by investing in a regular plan you have access to valuable advice and tools that are priceless. Ask yourself, are you willing to spend hours analyzing various scheme documents every day? Do you have the expertise to do so? A wrong decision can cost you dearly. Hence in the long term, the cost outweighs the benefits offered by direct plans.
9. Is a financial advisor vital to begin SIP investments? Could you share some advice for women who are excited to start this financial journey?
The role of a financial advisor is that of a mentor. A good financial advisor analyzes your risk profile and suggests the most appropriate investments for you. Remember the financial advisors are professionals who understand the nuances of the investments better than a layman. By paying a nominal fee an investor can get access to valuable services such as evaluation of the fund, devising investment strategy, maintenance of records and a lot more. Investing is a full-time job. An analysis of historical returns shows that financial advisors can help you to clock extra 1%-1.5% returns on your investment.
For those who are excited to start their financial journey, they should understand the mutual funds first. There is no substitute for education. Being aware helps you to make informed decisions. When it comes to investing the sooner you start, the better.