Choose the right scheme considering investment horizons, risk factors and exit load

 

For most investors, a systematic investment plan (SIP) means an SIP in an equity fund, and mostly for long term wealth creation to achieve a goal which is some years down the line. However, if you ask financial planners they will tell you that you can also have SIP in debt funds. Depending on your time horizon for investment, from a few months to several years, you can choose the appropriate debt scheme and set up the SIP accordingly. Depending on your requirement, you could also set up multiple SIPs. Some financial planners can even help you set up a structure where you transfer money only once at a pre-fixed interval, and your money goes into several SIPs.

According to financial planners, there are a few factors to consider while setting up a debt SIP. One of them is to select the appropriate scheme. Like equity funds, debt funds also come in various flavours and so each type of scheme can serve a different purpose. For example, if your time horizon is a few months and the purpose is to pay the annual health insurance premium, you can use an SIP in a short term debt fund. On the other hand, if your investment horizon is for a few months, liquid fund or ultra short term fund could be a better alternative, financial planners say.

Investors can set up an SIP at the portfolio level, rather than at the fund level. We suggest a portfolio approach to investing and set up SIPs accordingly. For example, we set up SIPs which automatically goes into equity and balanced funds.

To set up an SIP at the portfolio level, three factors are taken into account: risk profile of the investor, amount of money to be invested and the time frame.For example, if someone is investing Rs 10,000 every month for 10 years, the corpus will be distributed in one debt funds and three equity funds, and SIPs would be set up in all four schemes. Again, if someone is investing Rs 3,000 per month for 10 years, the SIP would be in a balanced fund.

In situations where there is scope for lump sum investment, usually financial planners set up at systematic transfer plan (STP) which in effect transfer a pre-fixed amount of money from this fund to other funds at regular intervals.