SIP

In Mutual Fund one option is to invest a lump sum . The other option is to invest regularly through a Systematic Investment Plan (SIP), a scheme where you can periodically invest a fixed sum, which could be as low as Rs. 500/- per month. Considered as one of the ideal low-risk methods of wealth accumulation, SIP helps investors over come the fluctuations of equity investment. Some consistently performing mutual fund companies include HDFC, Franklin India, Reliance Mutual Fund, Birla Advantage, UTI balanced, Kotak, ICICI and Morgan Stanley.

Investing through SIP makes timing and cycles of the share market totally irrelevant. With SIP, you invest a fixed amount regularly. Therefore, you end up buying more units when the markets are down (when the NAV is low) and less units when the markets are up (when the NAV is high). This is called rupee-cost averaging. SIP works as a disciplined investment method as it forces you to buy even when the markets are low, which is actually the best time to buy.

MONTH 1: Rs.1000/- NAV:Rs.10/- UNITS:100
MONTH 2: Rs.1000/- NAV:Rs.9/- UNITS:111.11
MONTH3: Rs.1000/- NAV: Rs.10/- UNITS:100
MONTH 4: Rs.1000/- NAV: Rs.11/- UNITS:90.9

Total investment: Rs.4000/-
Number of units purchased: 402.01
Therefore average cost per unit: Rs.9.95

Is mutual fund better?!

Mutual Funds

Mutual funds are the ideal place to invest small amounts of money because you can buy a mutual fund without direct trading costs. For example, if you put Rs.1,000/- in to a stock each month for a year, you will end up paying at least Rs.135/- in commissions to a broker. So out of Rs.12,000/- invested, only Rs.10,380/- goes to work for you-an automatic loss of 13 percent. But when you invest Rs.1,000/- a month directly with a fund, the entire Rs.12,000/- goes to work!!

Mutual funds are safer than you think. Mutual fund prices are driven by the price changes of the securities it holds- the fund is only as risky as the type you choose. Banks and insurance companies can go bankrupt but, by definition, mutual fund companies cannot. Once you understand inflation, average returns of different types of investments and compound interest, you may ralise you are taking a bigger risk by tying your money up with low-producing products like savings accounts.

A dedicated team of professionals is better than a single individual picking stocks.

The beauty of a mutual fund is that you don't need to be an expert on the thousands of stocks that it buys. Diversification (investing in various types of stocks) helps keep your returns up and risk down.

Investing in mutual funds is not hard. It can be as simple as filling out an application and mailing it in with a cheque. However, knowledge is power and if you desire to understand mutual funds and make smart investing decisions, call an agent now.

This content is taken from some books.