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Tuesday, October 8, 2013

Investing in debt mutual funds via SIP

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In debt fund SIPs, investors can opt for an exposure according to their needs

INVESTORS often wonder about the usefulness of a systematic investment plan (SIP) outside of equity funds. However, they should be happy to know that the SIP has usefulness not only for equity funds but also for debt mutual fund investments.

Different objectives can be achieved through these debt fund SIPs and hence, there has to be a wider analysis of the entire situation. Here is a look at the relevance of this idea and when it can actually be useful for an investor to consider this as an alternative option.

Rupee cost averaging:

 One of the basic features of an SIP is that it allows for rupee cost averaging. This feature is useful in situations where there is volatility, as it ensures that the average cost of the investment would work out to be lower by covering both the high values as well as the low values. Debt-oriented funds have seen an increased amount of volatility in recent times, which has led to fluctuating returns. Investors in many cases have no idea about how they should go about with their new investments and whether they should continue or not.

Investors with a long-term horizon should continue with their investments and the best way ahead might actually be to have an SIP on in their debt-oriented funds.

Matching cash flow:

Investing in debt fund SIPs will require a proper allocation of the money on a monthly basis. When this is done then the cash flow would be matched proper

ly with the investments being followed. This would prove to be an easy way to go about the process and hence is something that needs to be considered.

 

Competing investments:

The question is about the nearest competitor in terms of the choice of instrument as compared to a debt fund SIP, which would be a recurring deposit. This allows the investor to deposit a sum of money each month for a specific time period. The good part of the debt fund SIP is that the time period of investment can vary and hence, there is no rigidity on this score. This enables the investor to make decision about the time period of investment as per their requirements. The other point is that there is a single way of getting exposure to a recurring deposit in the sense that there would not be any choice in various details related to the deposit. Whereas, when it comes to a debt fund SIP, this can be done in a wide variety of funds. So the choice for the investor is large in the sense that they can opt for an exposure that would be suitable for their needs. This confers the ability on the investor to create a portfolio of investments whereby they are able to get different kinds of exposure that will be able to handle the situation prevailing in the markets better.



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