Know Your SIP
Mutual funds are those funds that let you invest in a bouquet of securities in smaller amounts as compared to investments made by large dealers. These funds allow you to participate in the performance of the securities on the market and being a part of the loss or gain in proportion to your investment. You can start saving in a mutual fund with as less as Rs 500 and then increase it in multiples of 100. You have two ways of saving in mutual funds. One is to save a lump sum amount on a yearly basis or you can save on a monthly basis called SIP i.e. systematic investment plan.
Know your SIP, the facts of which are mentioned below
What is SIP?
SIP is a systematic investment plan that lets you save on a regular basis in very small amounts. You can compare it to your recurring deposit or the post office scheme, but here the money is invest in different securities that are a part of the mutual fund.
Frequency: You can either invest a small sum every month or every three months.
Working of SIP: You can invest in stocks without trying to over analyse its movements. It is known as cost averaging. This means that you pay a fixed amount every month irrespective of what is happening in the market. Suppose you invest INR 500 in SIP each month, what happens when the market falls? Not much except your 500 will fetch you more share units, and if the share prices go up then your investment would get you lesser share units. What this kind of an investment does is that it averages out the number of share units that are added to your account. This average cost of share units is always on the lower end. The price of each unit in the mutual fund is called NAV i.e. net asset value. The NAV depends on the value of the all the securities in the fund on the market, its deposits and liabilities and the number of units that are still to be paid.
Within half a year you have nearly 250 share units by investing INR 500 every month. You can either profit or make losses from your investment depending on how the mutual fund performs on the market.
Administration fees: Most mutual funds don't have an entry fee but they do have an exit fee they collect if you sell your shares within a year of buying them. The administration charge could start from as little as 0.5% of you investment amount.
Taxing saving SIP: Investing in a tax saving mutual fund would mean investing in a closed ended fund i.e. it is under lockdown for a minimum of three years. This would mean that you can't withdraw from your funds or stop SIP for at least three years.
Would saving in a mutual fund make sense, yes it definitely would. Investing in SIP would let you ease your savings burden while also helping you grow your money over a period of time.
Know your SIP, the facts of which are mentioned below
What is SIP?
SIP is a systematic investment plan that lets you save on a regular basis in very small amounts. You can compare it to your recurring deposit or the post office scheme, but here the money is invest in different securities that are a part of the mutual fund.
Frequency: You can either invest a small sum every month or every three months.
Working of SIP: You can invest in stocks without trying to over analyse its movements. It is known as cost averaging. This means that you pay a fixed amount every month irrespective of what is happening in the market. Suppose you invest INR 500 in SIP each month, what happens when the market falls? Not much except your 500 will fetch you more share units, and if the share prices go up then your investment would get you lesser share units. What this kind of an investment does is that it averages out the number of share units that are added to your account. This average cost of share units is always on the lower end. The price of each unit in the mutual fund is called NAV i.e. net asset value. The NAV depends on the value of the all the securities in the fund on the market, its deposits and liabilities and the number of units that are still to be paid.
Within half a year you have nearly 250 share units by investing INR 500 every month. You can either profit or make losses from your investment depending on how the mutual fund performs on the market.
Administration fees: Most mutual funds don't have an entry fee but they do have an exit fee they collect if you sell your shares within a year of buying them. The administration charge could start from as little as 0.5% of you investment amount.
Taxing saving SIP: Investing in a tax saving mutual fund would mean investing in a closed ended fund i.e. it is under lockdown for a minimum of three years. This would mean that you can't withdraw from your funds or stop SIP for at least three years.
Would saving in a mutual fund make sense, yes it definitely would. Investing in SIP would let you ease your savings burden while also helping you grow your money over a period of time.
Source...