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Have a query regarding mutual funds? Maybe we can help.
Drop us a line and our mutual fund experts, Value Research, will do the needful.
What is the optimum frequency of the SIP?
Should it be monthly, quarterly or half-yearly?
- Jagadish
There are two ways you can invest in a mutual fund: an outright payment or via a Systematic Investment Plan.
A SIP is nothing but a periodic investment that has to be done. The amount stays fixed while you can select your duration -- it could be monthly or quarterly.
Let's say you commit to investing Rs 1,000 in your fund on the 10th of every month. At the end of a year, you would have invested Rs 12,000 in your fund.
Let's say the Net Asset Value (price of a unit of a fund) on the day you invest in the first month is Rs 20; you will get 50 units.
The next month, the NAV is Rs 25. You will get 40 units.
The following month, the NAV is Rs 18. You will get 55.56 units.
So, after three months, you would have 145.56 units. On an average, you would have paid around Rs 21 per unit. This is because, when the NAV is high, you get fewer units per Rs 1,000. When the NAV falls, you get more units per Rs 1,000.
What is the optimum frequency of a SIP?
This is solely a function of your convenience and how much you can afford. You should ascertain how frequently you can set aside money for this investment without pushing your finances to the edge.
While there is no doubt that a SIP is the best way to invest in equity funds, there is no sound basis for saying a particular frequency of investment is more profitable.
If you can invest comfortably each month, why not go for the monthly option? In this case, the cost you pay for the units averages over time and this will work better for you.
Moreover, whether you invest monthly or quarterly may not effect the performance of your portfolio as much as your discipline over the long term.
Therefore, focus upon investing in good, established funds over the long-term and not getting carried away by the market euphoria or any tall claims.
Invest through a SIP but choose the frequency that is more convenient to you.
I am thinking of investing via a Systematic Investment Plan. I plan to invest Rs 2,000 every month for the next 20 years.
How many funds must I select?
Is 20 years too long a time period?
Which are the funds you suggest?
- Ashiesh Kapoor
Twenty years is a long-term time frame, hence investing in equity is a good option. Since you want to invest in mutual funds, we would suggest diversified equity mutual funds. These are mutual funds that invest in the shares of various companies in various sectors.
Select three to four funds and invest in them every month.
You can log onto our Web site and select funds that have a four star or a five star rating. These ratings are arrived at after taking into account the return you get as well as the risk undertaken by the mutual fund to get you this return.
Your investment horizon should be based upon your needs.
If you do not have any needs which you can foresee and you are investing basically to accumulate wealth over long-term (which seems to be the case with you), do not get fixed to a particular number of years right now. Maybe you will eventually only be able to invest this amount for the next eight years.
It is good that you are starting and are thinking long-term. For now, keep it at that.
Also, keep in mind that you should not depend upon these investments for your short-term requirements.
Look at these investments after meeting your expenses and making reasonable provisions for any contingencies that may arise. Such investments would enable you to build a sizeable corpus for yourself over the years. In that sense, 20 years is not too long.
Got a question for Value Research? Please write to us!
Note: Questions may be edited for brevity. Due to the tremendous response, all queries will not be answered.
Disclaimer: While efforts have been made to ensure the accuracy of the information provided in the content, rediff.com or the author shall not be held responsible for any loss caused to any person whatsoever who accesses or uses or is supplied with the content (consisting of articles and information).
Illustration: Dominic Xavier
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