Should you invest in Debt Funds through SIP?
Since their launch 20 years ago, mutual fund online investments through the SIP (Systematic Investment Plan) mode have gained popularity. SIP investments distribute your financial burden, help inculcate disciplined saving habits and allow you to benefit from the changing market situation. However, the SIP investment mode is used more for equity mutual funds, whereas debt fund investment through SIP is still a considerably unexplored but highly beneficial category. If you are a low-risk investor, you can invest in debt mutual funds online to generate a fixed income at low risk. If you choose to invest in debt funds through the SIP mode, you can further reduce the market risk.
Here is why you should consider investing in debt funds through SIP:
What are debt funds?
Debt funds are mutual funds that primarily invest in fixed income debt securities, such as treasury bills, certificates of deposits (CDs), call money, commercial paper, corporate bonds, government securities, etc. Debt mutual funds are less risky than equity funds.
What is SIP?
Typically, there are two mediums of investing in mutual funds online – lump sum and SIP. In lump sum, you pay the entire investment amount at the time of purchase and receive quantum debt units as per the NAV (Net Asset Value). Alternatively, SIPs allow you to invest a fixed sum at regular intervals (generally per month) in the debt fund. You instruct your bank, and the SIP amount is automatically deducted from your bank account and transferred to the debt mutual fund online.
Why should you invest in debt funds through SIP?
Here are some reasons that justify investment in debt funds through SIP:
- Achieve financial goals: Generally, you would invest in a debt fund to fulfill a financialgoal within one to two years or to diversify your long-term portfolio. If you are investing for the first reason, debt fund SIP investments can prove highly beneficial. Ultra short-term funds mature in only three-six months, allowing you to fulfill immediate goals such as buying a car, saving for an expensive gadget, etc. If you are investing for the long term, debt fund SIP investments allow you to adopt a disciplined financial approach towards achieving those goals. The SIP is automatically deducted each month, ensuring you lock in your savings first.
- Rupee-cost averaging: When you invest in mutual funds online through SIP, you get more units when the market is low and lesser units when the market is high. This means your investment cost averages out over a period, enabling you to get potentially higher returns.
- Optimal diversification:If you invest in debt funds through SIP, you reduce your portfolio volatility. Debt mutual funds create a well-balanced asset allocation because of the fixed income added to the portfolio.
- Adaptive investment:Debt mutual funds allow you to invest in different fixed income instruments as per your risk tolerance and return expectations. You can invest in treasury bills, certificates of deposits (CDs), call money, commercial paper, corporate bonds, government securities, etc.
You can use the Tata Capital Moneyfy App to invest in debt mutual funds online through a medium of your choice – SIP or lump sum. The Moneyfy app allows you to compare different funds and make an informed investment decision.