Investment: Debt funds

In mutual funds, we have the option to select equity fund, index fund, sectorial fund and debt fund.

Debt fund is the fund that invest bonds and non-existant convertible debentures (NCD). It is better to invest in a fund that invests in government bonds and NCD of high rated companies.

Some may feel it safe to start a SIP in a equity fund and later start a STP to a debt fund from the equity fund. 

Selecting the right funds become the backbone of the mutual funds investments.

Investment: Patience

Once we have invested and set an investment goal, we must stick to our plan. Stopping a SIP and withdrawing an investment suddenly would not make us successful in investments.

Problem is not with the investment which will give the fixed return but with the investment which has uncertain return.

Investing is like planting a seed and watering it regularly. We must give it the required time to grow. This is really the hard work for the investors. Many investors fail in investment as they quit investing when they see the things are going as they have planned.

If we have planned well, selected well and invested or investing well, all we need is have patience. 

Investment: SIP & Lumpsum

We have two modes of investment.
1) SIP
2) Lumpsum

SIP or Systematic investment plan is investing a certain amount for a period of time. If we invest Rs. 1000 for 40 years @ 13%, we can expect the investment value above 1 crore. Here the invested amount is Rs. 480000.

Lumpsum is one time investment for a period of time. If we invest Rs. 100000 for 40 years @ 13%, our investments will grow above 1 Crore. Here the investment amount remains the same - Rs. 1 lakh.

In the investment type where the return is uncertain, SIP mode will be the best option to invest. ln mutual fund we can buy more units when the market is not performing well.

Investment: Invest now

Once we have saved enough for our immediate requirement or emergency fund, we can start our investments.

If we start early and invest Rs. 2500 only every month for 40 years @ 9 %, we have invested Rs. 12 lakhs and the expected amount is Rs. 1,06,24,012. This is the wonder of compounding return.

If we find it difficult to invest Rs. 2500 initially, we can reduce the investment amount to  Rs. 1000 but keep the investment period and rate of return as 40 years and 9% respectively, the expected amount is over 42 lakhs. 

The above examples show we can start our investments with any amount. As our income grows,  we need to save more and increase our investments. 

Investment: Growth and dividend

Investing in mutual fund has two options:
1. Growth
2. Dividend

Growth mutual funds are the funds that invest in growing companies. Growth option is accumulating of SIP amounts till the investor decides to redeem the amount or withdraw in the form of SWP. In this growth fund investments, investors enjoy the benefits similar to compound interest.

Investors can choose for monthly, quarterly or yearly payout of dividends. The dividend payout is not fixed. Here investors enjoy the benefits of investing in the companies that declare dividends.

Investment: SIP, SWP, STP & Switch

We all know we can start a systematic investment plan (SIP) in mutual fund and shares where we invest a certain amount for a long period.

After accumulation of wealth, we have the option of systematic withdrawal plan (SWP) where we can plan our withdrawal of a certain amount monthly, quarterly or yearly.

When we near our retirement, we can transfer our accumulated wealth from a equity fund to a debt fund. Systematic transfer plan (STP)  is the process to transfer the money monthly, quarterly or yearly.

If we want to change from one fund to another,  we can switch it partially or wholly. 

Investment: Start early

We should start early in the matter of investment. Investment should start when we receive our first salary.

The process is simple. Save first to invest. If we start early, a SIP of a small amount for a long time is enough.

We can start a SIP in the mutual funds or shares. A weekly, monthly or quarterly or yearly SIP in mutual fund can be planned and a fixed amount will be debited from the bank account on a fixed date.

SIP in share is different as the price of share varies everytime and every day.

Finally, invest early to retire early.