We all dream of financial security, but figuring out where to start can be tricky. The idea of investing feels overwhelming, especially for women. In my previous article I had spoken about some common misconceptions and myths that many women have related to Investments (Read Here). And, also about how Financial Education and sharing of relevant information from time-to-time can help women in many ways. With that in mind, I decided to simplify and explore some basics of investments, mutual funds and SIP for you.
If you’ve ever wondered about mutual funds or how to grow your savings, you’re not alone. As a Financial Planner, I can tell you that SIPs (Systematic Investment Plans) offer a practical, easy way to invest, especially for Indian women. Whether you’re just starting your financial journey or want to learn more, these simple tools that can help you achieve your financial goals and build a more secure future for you and your family. So, let me decode more mutual funds and SIPs for you.
What is Mutual Funds:
Simply put, Mutual Funds (MF) are where a pool of investors come together for a same goal and invest their money according to their appetite and achieve their Financial Goals.
A Mutual Fund Company invests that money in the stocks according to the fund category and help the investors are their money grow. It can be invested in a mix of assets like stocks, bonds, government securities, and even gold.
Importance of Mutual Funds Investment:
- They help you achieve your Financial Goals with Strategic Planning.
- There is an ease of Entry and Exit.
- You can have Tax benefits by investing in Mutual Funds.
- Follows Diversification principle.
- Professional Guidance is available on ease.
There are ways to make Mutual Fund Investment:
1. SIP (Systematic Investment Plan)
This means investing in MF like your EMI, there is a particular amount of money which will be deducted from your account on a pre-decided date.
Benefits of SIP
- Tax benefit.
- Rupee cost averaging to reduce market volatility.
- Start with the lowest as of INR 500.
- Flexibility to start, stop, increase the amount, decrease the amount, redemption.
- Compounding Benefits.
2. Lump sum Investment
The phrase ‘lump sum’ primarily means a large sum of money. In financial terms, in regards to the investment of a substantial sum of money at one go instead of breaking it down into multiple instalments.
Benefits of Lump sum Investment
- High growth potential.
- Ideal for long-term goals.
- Convenience.
- No need to monitor performance every day.
- Best to invest Windfall Gains.
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How to know which SIP one should choose?
Now, you may ask: I do not have enough money or money irregularities may disturb my SIP or Portfolio!
The solution lies in different form of SIP –
1. Regular SIP- Like every month Fixed date
2. Top up SIP – With increase in income, investment amount should be increased.
3. Flexible SIP – Change the amount according to the inflow of the money.
4. Daily SIP- Suitable for people earning regular income.
5. Trigger SIP- Suitable for people who have expertise in understanding financial market.
Key Financial Terms you should know:
Before starting your Financial Journey with Mutual Funds, It is important to understand a few financial terms:
- Net Asset Value (NAV) – It is per unit price of MF which is credited to your account on your investment inception. It fluctuates daily.
- Asset management Company (AMC) – The Company which manages your Mutual Fund with Fund Manager. A good selection is important for your money growth.
- Expense Ratio – Annual fee: MF Company charge to cover their expenses. A lower ratio is always good.
- Exit Load – A fee which you have to pay if you sell or redeem your mutual fund within a certain lock-in period.
- Asset Under Management (AUM) – It refers to the market value of the assets of the Mutual fund. It shows the popularity of the fund.
How to start with Mutual Funds and SIPs?
One may invest in mutual funds DIRECTLY i.e., without involving or routing the investment through any distributor/agent in a ‘Direct Plan’.
OR one may choose to invest in mutual funds with the help of a Mutual Fund distributor/agent in what is termed as a ‘Regular Plan’.
Both part of the same mutual fund scheme, have the same / common portfolio and are managed by the same fund manager, but have different expense ratios.
Benefits of going regular Plan:
1. Expert advice.
2. Right advice for diversification.
3. Risk assessment.
4. Professional Management.
Best Investment Plan; I would suggest being a financial Planner:
If you can save 5,000 per month with step up of 5% for 20 years; you will be investing approx. 20 Lac. Following will be the result of the investment:
Fixed Deposit: 38 lac
Large Cap Mutual Fund: 1 Cr.
Mid cap Mutual Fund: 2.2 Cr
Small cap mutual Fund: 5 cr.
“NEVER PUT ALL YOUR EGG IN ONE BASKET”
I would suggest:
2000 in Small cap for Long term Goal
2000 in Large and Mid-cap Fund for medium term goals.
1000 in Liquid Fund/ Auto sweep bank account.
Investing is easy – if you understand the basics of how, when and how? Till then, always consult an expert for the achievement of your Financial Goals. Sooner- The better to transform your Money into WEALTH.
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