Sushila Patel, a stay-at-home mother of two young kids, earns a few thousands each month, teaching phonetics and drawing classes. She realizes the importance of being financially independent, and deposits her monthly earnings into a recurring deposit. However, she wishes she could earn a higher rate of interest.
Tanya D'Souza, is a young freelance author. Her freelancing income is quite irregular and she can only invest small sums once every two or three months. She is looking for a investment tool that will cater to her needs.
Three women with different incomes and different goals (planning for retirement, earning higher returns, and investing small sums)-can there be a single investment strategy that can work for all of them?
Although it seems unlikely, the answer is yes. Darshana, Sushila, and Tanya can each benefit by opting for the systematic investment plan of a mutual fund scheme.
What is a systematic investment plan?
A systematic investment plan (SIP), as the name suggests, is an option wherein you invest a fixed amount, say Rs 1,000, in a mutual fund scheme at fixed intervals, say monthly, for a duration of your choice, say two years.
How it works
Suppose you decide to invest Rs.1000 on the 1st of every month in a specific mutual fund scheme. On the 1st of every month, your money is used to buy units of that scheme at the prevailing NAV or market price. When the NAV or price of the mutual fund units go up, your Rs 1,000 will buy you fewer units. When the NAV of the mutual fund goes down, you will end up with a higher number of units. Thus, over time, the purchase cost of the units averages out.
Like most investments, SIPs have their advantages and disadvantages.
Advantages of SIPs:
Start small: Most of us find it difficult to invest large sums of money regularly. For some, this becomes the excuse to avoid investing at all. Depending on the mutual fund scheme you select, you can invest as little as Rs 500 per month, which is an amount most people can afford.
Earn higher returns than bank deposits: Investing in the fixed or recurring deposits of banks often earns you a fixed interest rate. Mutual funds, on the other hand, invest in the equity market. Therefore, more often than not, you can be assured of earning higher returns on your investment than on a bank deposit.
Lower your risk as compared to stocks: Investing in equity often gives small investors, especially women, the jitters. "It's risky," is a common refrain.
However, because mutual funds invest in a large number of companies across a range of industries, the risk of losing money decreases compared to investing directly in stocks. Besides, some mutual fund schemes also invest in safer instruments such as government bonds which significantly lowers the risk.
Mail this Topic 
A Network Eighteen Venture
Tell us what you think…