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Investors new to the investing word often relate the term SIP (Systematic Investment Plan) to equity mutual funds. While experts usually recommend breaking long-term equity investments into small, insignificant periodic investments, you can do the same with debt mutual funds. Before we dive deeper into that, let’s swiftly recollect what debt funds are.

What are debt funds?

These mutual funds invest in fixed-income investments such as commercial papers, treasury bills (T-bills), corporate bonds, money market instruments, government securities, etc. By investing in these mutual funds, an investor earns a pre-determined interest rate on maturity. As a result, the returns on debt funds are usually unaffected by market fluctuations. Hence, debt funds are usually considered as low-risk investment options.

SIP in debt mutual funds

Many investors are made to believe mere lump sum investment is appropriate for investment in debt funds. However, they cannot be more wrong. An investor can invest in mutual funds via both lumpsum and SIP mode of investment, and this holds true for debt funds as well. You might consider investing in debt funds via SIP under following circumstances:

  1. To invest regular savings in a structured and disciplined manner so as to accommodate long-term investment goals.
  2. To benefit from the power of compounding, also commonly referred to as the eighth wonder of the world by most experts. Compounding is nothing but the interest earned on rate of interest. Compounding aids to generate wealth over a prolonged duration.

How does a SIP in debt funds help?

An investor usually invests in debt funds either to achieve their financial goals that have an investment horizon of one to two years or to cater to their long-term debt allocation to balance their portfolio.

If you are more focused on the former part, you must first primarily assess the estimated investment amount needed and the investment horizon for your goals. You can easily do this with the help of an SIP calculator.

SIP investments help an investor to set aside small, insignificant sum of money each month towards a financial objective which is at least a few years away. While equity SIP mutual funds enjoy the leverage of sufficient time to beat the market volatility and grow their investments, debt securities have more to do with managing one’s conduct.

If you wish to invest in debt funds via a systematic plan for a long-term duration to fulfill investment goals such as creating an emergency fund or balancing risk in the portfolio, SIP in debt fund or even liquid funds could be ideal. Make sure to invest in mutual funds online only after judicious analysis of your investment portfolio and ensure that it and aligns with your financial objectives, risk appetite, and investment horizon. Remember, just like lumpsum investments, SIP is an investment tool. Hence, you do not invest in SIP per se. Happy investing!

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