Meaning of SIP:

When it comes to invest it is hard to fetch a big amount every time. Investments are our base for future specially for private sector employees as they don’t have pension security.Here you can start your savings to be deducted from your salary account even before you start your expanses. Start some SIP’s into the diversified sectors and make sure that they are deducted first and then you start spending. You can choose any type of fund for SIP. Like for tax saving I can start an SIP in ELSS. Click here for top ELSS funds.

We have also explained here how you can invest in ELSS without brokerage.

Why SIP is safe than lump sum investment:

Market never moves in a straight line. It has ups and down. Then what direction our investment will have if we choose to invest lump sum. May be you luckily enter in a bull market and your investment start fetching a super return in starting period. New investors enters at a bull phase are hard to handle. If they are suggested SIP they simply say my lump sum is doubled in one year but return of SIP will be less in that case. You need to remember that bull phase is a very small phase of a big cycle. What if you enter at the starting of a bear phase next time. Huge fall in your returns. A wise and experienced investor will always go with SIP in market.Some other benefits of SIP are.

• Small investments can make a huge amount in time.
• Power of compounding will help in meeting the investment goals.
• Equity market always provide better returns for systematic and long term investors.
• It is more disciplined way to make investment.
• It helps in better tax saving. You dot need to hurry at year end . Just start an SIP in ELSS. It will complete your 80C tax savings requirements also.
• SIP collects very small amount each month. Like Rs. 500 per month. You can easily diversify even a small amount into various funds.
• Its easy to save a small amount from expanses each month. 

Ideal mix of investments:

You should have a mix up of all variety of investments. Some of low risk and some of high. You may put some amount in liquid funds and some in FD. That depends as per the condition of economy and your liquidity requirements. If you feel you will need money shortly go with liquid fund. For the money you can keep invested for long term go with equity mutual funds. Every product have its unique feature, taxation and correct time to enter. Before making an investment you need to take care of all those factors. 

Another important factor is to control your greed. Many investors don’t invest when market is low. Because they refer the immediate past return which is of course negative because market is down but then that is the best time to enter. Unfortunately these kind of investors enter into market when they see that market is going high and immediate past return is very high. But then it may be the time to come down. These kind of investors are derived by greed instead of market study. That greed make them huge losses and then they leave the market linked investment instrument with a negative note. Sometimes for ever.

Taxation is also an important thing to take care. Long term capital gains on STT paid mutual funds is exempt. On the other hand ELSS are eligible for 80C deduction. Liquid funds with dividend option can provide a slight tax saving if you are in highest tax bracket as they are liable for DDT. In the hands of investors they are exempt. It is important to make a research in taxation of all mutual funds and then take the final decision regarding their investment.

Here I am briefing some of the basic factors help in choosing which investment to pick.

Long term debt or bonds or tax free bonds: When Repo rate is high and it is almost touching its peak. It is better to lock your funds in high interest paying instruments for a long period. It will not only fetch you good interest income but will also increase the intrinsic value of your bond or NCD. If they are traded in market you will be able to earn some capital gains also

Equity mutual funds: Keep some SIP every time. But when market break its 100 DMA double your SIP.  When it crosses 100DMA book half of your investments. It is simplest pattern you can develop some more complex patterns as per your requirements.

Sector based mutual funds: If you can keep a watch on economy. Start an SIP in buzzing sector. Sometimes a bottomed out sector may also be a good entry point.

These were some simple factors we need to consider before investing. Its and art which need a lot of discipline. But you can develop and comprehend it. 

There are various tyoe of mutual funds also:

• Diversified: These funds invest some amount in equity and some in debt. They are comparatively safe than pure equity funds.
• Debt funds:  These funds invest in money market instruments and government securities. In these kind of funs timing is the most important factor. They are segregated on the basis of maturity of debt they invest. Like liquid funds, short term funds have more liquidity than long term funds.
• Nifty 50 or BSE 30 type funds are index based. they put the amount in each component of NIFTY or index  in same proporrtion they have in Index.
• Sector based: Sector based fund are like banking fund or pharma funds. they invest in shares of a particular sector. You should see the growth prospects of entire industry before putting money into these funds.
• top 10 or 20 or 50 : These kind of funds pick from the best equities in index. Like bluechip shares and invest in them. they are also comparatively safe but return is less in comparison to other funds.
• based on capitalization of shares: These funds invest in midcap or small cap or large cap. They choose shares as per their size. Midcap funds can provide the huge returns at the time of bull run. But at the time of near phase they fall in same speed. Sometimes even faster.

Disclaimer: Market investments are subject to risk.Before investing please discuss with your advisor. We here don’t solicit for any mutual fund investment.