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Mutual Funds - Options galore, but a monthly SIP's best

02 Nov 2012

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Based on your financial requirements, you have Flexi, Trigger and Pause; there are others that fit into daily and weekly slot as well

After a lot of coaxing from a friend, Medha Sharma, a software professional, finally decided to get cracking and start investing in mutual funds via the systematic investment plan (SIP) route. However, when she went to the distributor, she realised that she was spoilt for choice with a string of SIPs jostling for shelf space. She was prompt to conclude that this may not always be a good thing for a first-time investor.

Utterly confused, she made a quick exit. And for now, she has put the plan on the backburner, once again. Regardless of the course of action Medha finally chose, let’s find out what options we have. Flexi SIP, for its part, allows the investor to reshuffle the investment amount according to the market situation. This offer is available for a few fund houses such as HDFC, Reliance and ICICI Prudential MF. Financial planners point out that the instrument works best for those investors who may be unsure of the amount they can save every month.

Even then, this option should ideally be used only for beginners for a few months to figure out the amount. That done, the investor can ideally look at switching to a monthly SIP. The disadvantage here can be that the financial discipline of investing a fixed sum every month will be lost, which can affect your total corpus, going ahead. With Trigger SIP, as the name suggests, you can set certain triggers on your investment.

This means you can fix a target of certain sum to be invested if the market hits a certain point. You can also customise the trigger and choose it based on returns, market levels, date and the NAV earned. However, experts are worried that this may defeat the whole idea of an SIP.

“If you are looking at a goal-based investing for a long term, going for an option like this does not make sense for an investor,” says Renu Pothen of fundsupermart.com. Even with a daily and weekly SIP, you may end up timing the market, again something that doesn’t augur well for your investments. Take a daily SIP, for instance,where an investor keeps poring over the details of investments and calculating the profit/loss on a daily basis.

Advisors say this may lead to a panic situation and investors may rush to book profits with a short term in view. Suresh Sadagopan, who runs Ladder 7 Financial Advisory Services, said a monthly SIP packs a punch. “This is because with other SIPs, the amount invested every month and the time at which it is invested will differ and this can be a big hassle for an investor,” added Sadagopan. However, in certain cases, some features like a Pause SIP may just come in handy.

This allows you to pause your SIP for a couple of months in the case of a short liquidity tightness. Medha’s case may be a blip, but otherwise, the verdict is clear – if you want to go with an SIP, a monthly one can ensure a soft landing.

Source: DNA BACK