Strategies For Investing In India Mutual Funds
as an investment option
Investments in stock market through Mutual funds cushion an individual player from abrupt stock movements. The other advantage is easy availability of expert advice, on investment decision, which is arrived by ananlysing financial, economic and political factors that might affect the scrip movements in sync with international research practices.
Systematic Investment Plan (SIP) Vs. Lump Sum Investment
A SIP is a planned investment programme under which you invest a small amount of money at regular intervals. The minimum amount can be as small as Rs 500 and the frequency of investment is usually monthly or quarterly.
By the process of regular investing one gets to invest in highs as well as the lows and this helps in averaging out the volatility of market. In lump investment one has to be very cautious, as there is a need to time the market entry. The average cost of investment is very low for investments made over a period of time, which is not the case in lump sum investment. In SIP the investment is compounded and hence the yield goes up. This feature is absent in lump sum investment. Equity Linked Savings Scheme (ELSS) Vs. Regular Equity Schemes
The ELSS schemes generally outperform the diversified equity schemes. The basic reason is the lock in period of three years in the ELSS schemes. The lock in period helps the fund manager to stick to the holdings and bring in an element of stability. Whereas the fund managers of diversified equity schemes are forced to maintain excessive cash positions.
ELSS offers tax benefits too. The Finance Act 2005 has allowed claiming of deduction under section 80C up to Rs 100,000.The other equity schemes generally donot have this benefit.
Auto Debit Facility
Service providers of Mutual Funds have introduced auto debit facility in select cities in India. By opting for it, the investor need not give post-dated cheques for the investment made by him. Just signing the auto debit form (ECS- Debit Clearing) does away with the paper work.
The investor can chose the date of debit depending upon his convenience. The investor also had the option of changing the bank account, from which the debit is made, by giving a written notice in advance to the service provider.