Many investors take SIP route to invest in equity funds to get the benefits of rupee cost averaging. However, with heightened volatility in debt funds, it makes sense to start SIP in these funds as well.
Apart from rupee cost averaging, SIPs offer host of benefits like convenience, flexibility and reduces risk of timing the markets.
Let us look at some key benefits of doing SIP in debt funds:
Minimises market timing risks
Like share prices, interest rate of debt securities goes up and down, albeit at a lower level. In such a scenario, existing investors tries to time the market by buying debt securities that offer higher rates. However, it is easier said than done as no one can predict market movement and external factors like liquidity, inflation and interest rate regime. The returns depend a lot on the price point at which one invests.
SIPs negate this risk of market timing. By following a regular schedule, investors accumulate units at different price points and yields.
Brings discipline
SIPs bring discipline in mutual fund investments. The automatic withdrawal and investment feature ensure that transaction will be executed every month without fail.
SIPs come with flexibility. Investors have the option of pausing or discontinuing SIPs. Also, even if the transaction fails due to insufficient balance in account, AMCs do not charge any penalty.
Which debt funds are best for SIP?
All debt funds are not suitable for SIPs. Debt funds which have higher volatility and need long investment horizons should be considered for SIP investments. This is because SIPs need long investment tenures to take advantage of the power of compounding and deliver higher returns.
Funds suitable for SIP include dynamic bond funds, gilt/long duration funds, banking and PSU funds and corporate bond funds.
Expert take:
Debt guru, Joydeep Sen believes that advantages of SIPs apply equally to debt and equity funds, except for the concept of cost averaging, which is more relevant to equity funds. SIPs bring discipline in mutual fund investing, be it debt or equity funds., he said
Disclaimer: An Investor Education Initiative by Mirae Asset Mutual Fund
For information on one-time KYC (Know Your Customer) process, Registered Mutual Funds and procedure to lodge a complaint, refer to the knowledge center section available on the website of Mirae Asset Mutual Fund
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
