Do not waste your time dreaming to start investing in the next year. Once you have laid down your goals, you can start by investing as little as ₹100 through SIP in mutual funds. Many mutual fund houses-- ICICI Prudential Mutual Fund, Quantum Mutual Fund, Nippon India Mutual Fund, Principal Mutual Fund, Aditya Birla SunLife Mutual Fund, UTI, IDFC Mutual Fund offer the facility to start SIP with an amount as low as ₹100. This low denomination SIP facility is quite useful for new investors or o investors living in smaller towns, students, or even those who have hit their budget due to and income loss during covid times.
Once you are comfortable investing more, you can top up your SIP or start a fresh SIP. Most other mutual funds allow a minimum investment of ₹500 through SIP.
Apart from rupee cost averaging and benefits of compounding, the best part about investing through SIP is they are affordable and flexible. It is suitable for any wallet size.
Mutual funds collected ₹7,800 crore via SIPs in October, 5% lower on an year-to-year basis.
Stick with SIP to get the best out of it
Merely starting SIP for your goals will not be enough. SIP works if you stay with it in the long term. You will have to continue investing through your SIP through the short term volatility. According to the data by Amfi, investors invest for an average period of around two years through SIP, which is insufficient.
Amfi data also shows that SIP contribution increases during rising markets and as soon as the equity markets get volatile, the monthly contribution, starts to fade. Monthly SIP contribution for March stood at record highs of ₹8,641 crore. But as soon as the equity markets sensed pressure due to the covid-led national lockdown, the SIP contributions fell to ₹8,376 crore in April. The SIP investments continued falling to ₹8,123 crore in May, ₹7,917 crore in June, ₹7,831 crore in July, ₹7,792 crore in August, ₹7,788 crore in September.
Stopping SIP midway is an opportunity loss
We have calculated SIP returns in a large cap index fund and an average performing mid cap fund to gauge the returns lost by delaying or stopping SIP in the last 10 months. The SIP period was February 2020 to November 2020. Annualised return of 10-month SIP in the large cap index fund was 57.69%. The annualised gains in the mid cap fund during the same period were 51%.
So, discontinuing SIP during volatile times, might not be a good idea.
₹100 SIP is not enough
Though mutual funds allow ₹100 SIP, it may not be enough for most investors. Always do your math to accumulate a sufficient corpus for your goals. Some efforts done today, will reap wonderful returns in future.