Every individual is expected to identify the primary reason behind their investment. Are you looking for a scheme to save taxes, or do you wish to create wealth through long term investment? Are you investing to build a decent retirement corpus or are you saving enough to buy that luxury car you always wanted? Having a defined financial goal and working towards it is essential and key to successful financial planning. The next thing for an individual to understand is how much risk they can tolerate with their investments. Understanding one’s risk appetite is equally essential as it helps an investor understand his / her limits. Remember that if you are considering investing in financial vehicles like stocks or mutual funds, there is always the risk of losing money. Hence it is better to align your investments with your financial goal and your risk appetite.
If you are considering investing in mutual funds, you should at least know some basics about them. Mutual funds are professionally managed funds where the asset management companies collect money from investors sharing a common investment purpose and invest this money across the Indian economy in stocks and other marketable securities like government bonds, corporate securities, treasury bills, etc. The performance of a mutual fund solely depends on the performance of its underlying assets and the sectors or industries in which they invest. Mutual fund investors receive shares in the form of units in proportion to the money they invested and depending on the fund’s existing net asset value or NAV. Depending on the performance of the fund’s underlying assets, the NAV of the fund may increase or decrease.
What is SIP?
Mutual fund houses offer two investment options for investors – you can either make a lumpsum investment or invest in mutual funds via SIP. If you have a surplus cash parked which you may want to put to better use, you may consider investing in mutual funds through lumpsum. When you make a lumpsum investment, you usually invest right at the beginning of the investment cycle and also get allotted more number of mutual fund units in proportion to the money invested and depending on the fund’s existing NAV.
But if you want to give your mutual fund investments a systematic approach, you may consider investing in them via Systematic Investment Plan or SIP. SIP is an easy and hassle-free way for regular investing, which an investor can do from the comfort of his smartphone or laptop with a decent internet connection. All one needs to do is inform their bank, and a predetermined amount is debited from their savings account and transferred to the mutual fund. There are two ways to start a mutual fund SIP – you can either start a weekly SIP or a monthly SIP. To find out which SIP is better, continue reading.
What is better – Weekly SIP or Monthly SIP?
| Weekly SIP | Monthly SIP |
| In weekly SIP you make a payment towards your mutual fund one in every 7 days | In monthly SIP, you invest a predetermined amount in your mutual fund once a month |
| As you invest weekly, your investments are less volatile to market vagaries | Since you invest only once a month, your investment amount remains exposed to market volatility for a longer time period |
| Your average purchase cost is minimized | Your average purchase cost is more because you are investing once in every 30 days |
| Short term market vagaries might distract you | You tend to not get bothered by regular market fluctuations |
Now that you know the difference between monthly SIP and weekly SIP, how are you planning on investing in mutual funds? No matter how or where you invest, make sure that your investments are strong enough to help you get near to your ultimate financial goal.