Mutual funds are great investment tools. No one investor invests in a particular market rather it is a way in which investments are done collectively in stocks, bonds and other markets and you pay a portion of the collective sum of investment. For a well-rounded portfolio, mutual funds are very important because the risks in stocks are minimised when they are handled by professional experts and as the investment gets spread out among various securities, the risk gets minimised. Mutual Funds allow one to invest with a small starting fund and even smaller timely funds with SIPs.

With as little as 500/- per month, you can enjoy the benefits of compounding and rupee averaging, and the sooner you start the more beneficial SIP is. With SIPs, you dont need to time the market as your investments are spread out over time and a variety of securities. It is important to determine the right SIP and the amount of money to be invested. Chosen wisely, they can help you achieve various life goals such as a childs education, setting up a business, old age retirement security and more. Vestra helps you choose the most apt Mutual Funds and SIPs for your goals with its team of experienced and knowledgeable investors who are well versed in the mechanics of investment.

Types of Mutual Funds

1. Equity Funds
Equity funds aim to provide capital growth by investing in the shares of individual companies. Any dividends received by the fund can be reinvested by the fund manager to provide further growth or paid to investors. Both risk and returns are high but equity funds could be a good investment if you have a long-term perspective and can stay invested for at least five years.
 
2. Debt or Income Funds
The aim of debt or income funds is to provide you with a steady income. These funds generally invest in securities such as bonds, corporate debentures, government securities (gilts) and money market instruments. Opportunities for capital appreciation are limited.
 
3. Balanced Funds
The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. The investor may wish to balance his risk between various sectors such as asset size, income or growth. Therefore the fund is a balance between various attributes desired, however, NAVs of such funds are likely to be less volatile compared to pure equity funds
 
4. Liquid Funds
Liquid funds are a safe place to park your money; it is an appealing alternative to bank deposits because they aim to provide liquidity, capital preservation and slightly higher interest rates than bank accounts. Returns on these funds fluctuate much less compared to other funds as the fund manager invests in cash assets such as treasury bills, certificates of deposit and commercial paper.
 
5. Index Funds
Index funds are passively managed funds i.e. the fund manager attempts to mirror the performance of a benchmark index like the BSE Sensex or the S&P CNX Nifty, by being invested in the same stocks. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index.


SIP (Systematic Investment Plan)
This is a simple strategy for accumulating wealth over a period of time by investing regularly at a fixed interval of time in mutual fund schemes, this is similar to the concept of recurring deposits scheme, but this being in equity come tagged with relatively a higher risk and higher return than the recurring deposit.
 
What is Systematic Investment Plan - SIP
An investor commits to invest a specific amount for a continuous period at regular intervals, this ensures that he gets more units when prices are lower and fewer units when prices are high, this works on the principle of rupee cost averaging when invested at different levels and automatically participate in the swing of the market.
 
Advantages of Systematic Investment Plan - SIP
Power of Compounding, To avail the benefit of power of compounding one has to start early and invest regularly, a delayed investment will lead to greater financial burden to meet the required goals, at early stage a less investment needed where as more investment is needed at a later stage to accumulate the same planned corpus.
 
Rupee cost averaging
It means averaging the cost price of your investments.

SIP helps in averaging the cost as equal amount is invested regularly every month at different NAVs. SIP works well in a volatile market as in the months where markets are down you get more number of units as the NAV is down and when the markets are up you get less number of units. But over all the prices gets averaged out.

Let us see how: Say you make your first investment of Rs 1,000 at a NAV of Rs 10. In this case, the units acquired will be 100 (1,000/10). You make the next investment of Rs 1,000 at a NAV of Rs 12. Units acquired now will be 83.33333 (1,000/12). Now also suppose that you make the third investment of Rs 1,000 at a NAV of Rs 9 and the units acquired will be 111.1111 (1,000/9).

The average purchase cost works out to Rs 10.19 (3,000/294.4444).
 
Convenience:
It is very easy to start an SIP, you need to plan your saving wisely and keep aside some amount of money every month for investing in funds, investment can be done either by post dated cheques or through ECS instructions in specific fund house scheme, its always better to start at an early age with small amount and increase the same from time to time. If you have not invested yet, start now without any delay, waiting for the right time to invest can lead to missed opportunity, a Systematic Investment Plan (SIP) is a smart way to achieve your various financial goals and ensures you with the required corpus which was initially planned for the specific requirement.

One can take the benefit of SIP only, when you choose the right schemes and be faithful and continue to stick to it, without any deviations.

SIP investment in well diversified and good performing scheme that can provide financial solutions to your long term goals like child education, marriage and your retirement.

An investment of Rs.2000 every month for the next 15 years at 15% return per annum can fetch you Rs.12,32,731 at the end of 15th year (solution for your child education).

An investment of Rs.3768 every month in the next 20 years @ 15% return per annum can fetch Rs.50 lakhs at the end of 20th year. This could be the solution for your retirement.