Why Consider SIP Investment for Debt Funds?

Investing is essential for anyone who wishes to achieve financial stability in freedom. There is a misconception among the general audience that saving a certain portion of your monthly income is enough and that you need not invest. However, this idea is not a feasible one because savings alone may not be able help you sustain longer. Inflation may eat up your entire life savings and hence, one should also consider investing regularly to attain sustainability in the long run.

However, before investing it is better if you have a clear set of short term and long term financial goals. Anyone who is good at financial planning knows that setting realistic goals is essential to chart out an effective investment plan. Every individual’s goals are bound to vary depending on certain things like their age, investment horizon, risk appetite, existing liabilities, existing investments etc. For example, someone who has an investment plan reserved for retirement planning may want to invest to financially secure their child’s future. On the other hand, those who already have secured their long term goals through adequate investments may want to invest for meeting short term goals like buying a car or planning a vacation.

When it comes to short term goals, investors seeking capital appreciation through market linked products consider investing in debt funds. Debt funds are little different from equity funds. Which is why investments in debt funds are considered to be less risky (however, this may not prove to be true in every situation). Investors with a fairly low risk appetite turn to debt terms for meeting short term goals.

If you wish to find out more about debt funds, continue reading:

What are debt funds?

SEBI (Securities and Exchange Board of India) has categorized mutual funds based on certain attributes like investment objective, asset allocation, investment strategy, risk profile etc. Debt funds are one of the major mutual fund categories that investors consider for meeting short term financial goals. Debt mutual funds invest predominantly in fixed income securities like call money, certificate of deposits, government securities, corporate bonds, treasury bills, etc.

What is SIP?

Fund houses / Asset Management Companies offer two investment options for debt funds investors – they can either make a lumpsum investment or they can opt for a SIP plan. A lumpsum investment is where you pay the entire investment amount right at the beginning of the investment cycle. Debt fund investors receive units in lumpsum in quantum with their investment amount and depending on the fund’s existing NAV.

A Systematic Investment Plan on the other hand, allows investors to pay a fixed amount at regular intervals (usually per month) towards their debt fund. With SIP, all one has to do is instruct their bank, and every month on a fixed date, a predetermined amount is debited from their savings account and electronically transferred to their debt fund using an SIP app. One can say that SIP is an easy and hassle free way to invest in debt funds.

Why should you invest in debt funds through SIP?

Starting a SIP in any mutual fund is always a good idea. Here is why you should consider investing debt funds through SIP:

Power of compounding

Compounding in simple terms means compounding in mutual funds refers to the interest earned on the interest or profits earned on the profits from your investments. And because of this feature, compounding may be able to turn small SIP amounts into large corpuses.

SIP may teach you disciplinary investing

With SIP, you are paying a fixed amount towards your debt month every month. Through automated transactions the money is deducted from your savings account and electronically transferred to your debt fund. This way, SIP may inculcate the discipline of investing regularly in an investor. It may also help one understand that if they want to achieve their financial goals, they may have to invest systematically throughout the investment cycle.

These are some of the reasons why one may consider investing in debt funds through SIP. Not only does it give your investments a disciplinary approach, but it also helps you realise that if you want to reach your ultimate financial goal, you may need to invest regularly without skipping or prematurely withdrawing your investments.

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.