What are some SIP suggestions for a beginner in the field of investing?

Dr Prasanna Lakshmi
Jul 15, 2019

I am a beginner to the field of investing. I would like to start a basic SIP of 3000 rupees per month for my retirement. I am 28 years now. Which SIPs do you suggest?

1 Answer
Jul 15, 2019

Dear Prasanna, Investment process is very easy to understand. You need to know two things to be a successful investor.

  • Knowledge: Gather knowledge about investment, personal finance, its process, financial instruments, its pros and cons and characteristics, risk and return theory. Knowledge about Personal Finance will keep investor on the right track of wealth creation.
  • Discipline : Wealth creation is a long term phenomenon. It can be achieved only when investor keeps on investing continuously and keep invested for long. Discipline makes it happened. Investor’s disciplined approach make him /her save regularly, up to the targeted term to achieve the particular life goal.

Functioning of Mutual Funds and SIP is also very simple. Mutual Funds are suitable to all types of investors having ultra short, short and long term horizon. Investor can invest in mutual fund by two ways. First one is Lump sum payment and other one is through SIP. Systematic Investment Plan is a great tool to invest in a staggered manner allowing investor to invest small amounts periodically i.e. weekly, monthly or quarterly. Investor can start investing in mutual fund through SIP by minimum of Rs. 500 only. Some scheme also have provision of monthly SIP of Rs.100.

Equity Mutual fund returns are market linked. It carries risk but in long run through SIP investment pattern this risk becomes calculated and almost manageable. SIP made in a good quality Large, Multi-cap funds and smaller portion in Mid and Small caps can generate returns ranging from 12 to 16% p.a. But considering ups and downs in equity market it is always prudent to be realistic and reasonable. SIP investments’ rate of return should be considered at 11% p.a.(overall portfolio return) for safer side if investment made through SIP.

Beginners should start investing cautiously. The general rule of investment is that, invest in those assets which you understand and whose process of investing is simple and hassle-free. Mutual fund is one such investment.

As per your age, you can allow 80% of your savings into equity and 20% in debt. Spread your investible surplus as follows

  • 80% of the surplus should go to Equity through Mutual fund SIP. Build your equity portfolio based on Core and satellite approach. In this pattern, more proportion of money is invested in Large and Multi cap fund. The large-cap can generate 10 to 12% returns for SIP investments. These funds provide stability and minimize the downside risk of the market. The smaller portion is invested in good quality in Mid and Small Cap as satellite portfolio which has the potential to generate 15 to 18% returns. This can add a kick in overall portfolio returns.
  • In Debt Mutual fund also be very caution when you invest in Short term or Long term debt funds. These type of debt funds are exposed to Interest rate risk means it affects the bond price and thus the NAV of the debt fund. The bond price and NAV go down if interest rates are rising, while they go up when interest rates decline. One more risk Debt mutual fund carries that is Credit risk . Credit risk in debt funds is the possibility that the issuer of the security may not pay back i.e. default at the time of repayments. This risk is recently observed/borne by the investors because of DHLF and IL&FS crisis.

So it is always better to understand the risk associated with each and every type of mutual fund. If you are new in investing first invest in Debt liquid fund and overnight debt fund.

For Equity mutual fund investment I recommend you to invest in Index Fund initially then after 3 months try ETFs and Aggressive balanced fund. As you get familiar with the mutual fund world you can add Large cap and Multicap. And if you are risk taker add Mid and Small cap fund in smaller proportion.

I can't specify the fund's name here. You can contact me for the personalized advice any time. Hope this helps.

Do remember:

The Best vehicle to invest in Mutual Fund is Systematic Investment Plan — SIP

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