Investing has become extremely easy with the advancement in technology, allowing you to get everything done—from learning about the various investment options available to investing in them from your smartphone or laptop. The age-old investment mechanismof small savings, even today, is an ideal means of saving. Historically, you saved a small amount on a daily, weekly, or monthly basis in safer products like recurring or fixed deposits.Today, you may invest a smaller amount and make it grow faster through mutual funds investing. This habit of regularly saving a small amount inculcates an investment discipline,patience, and perseverance.
The accommodative monetary policy of the Reserve Bank of India has resulted in the decrease of interest rates. Therefore, the returns on your savings accounts, recurring deposit (RDs), and fixed deposits (FDs) have diminished. Inflation, on the other hand,continues to rise and effectively erodes your purchasing power. Therefore, it is important that you find alternative avenues to achieve financial security and stability in the future.
The share market
Evidently, it has become a challenge for you to make your investments grow faster and earn higher returns through the simple and safe investment tools like RDs and FDs.You may consider investing in the share markets; however, it is a complicated option that may deliver higher returns but is risky due to price volatility.Here are three difficulties you may face when investing in the share market.
- Time the market
Like any commodity, equity must be bought at low prices and sold at higher prices to make money. However, timing the market is difficult even for experienced professionals. This makes it almost impossible for novices to time the market.
- Long investment horizon
There aredividend-paying equities that may provide you better earnings by staying invested for the longer term. Historically, you may earn higher returns when you stay invested in stocks for a period of ten to fifteen years.
- Complex analyses
In order to be able to invest in equities, you need a broker. Alternatively, you may need to open a trading and demat account. Either way, you will have to know how the market works, identify the trends, and predict the future of the equity as aptly as possible. Buying the right equity at the right time and deciding if to stay invested or exit are two critical decisions that require a lot of research and understanding. Fundamental and technical analyses are complex, especially for beginners.
How toopen a demat account
If you want to know how to open ademat account, your bank’s local branch should be able to guide you through the entire process. You need to submit an application form along with basic documents to open an account. The entire procedure is quick and simple. You may also open a demat account online for further convenience.
With so many challenges to stock investing, mutual funds (MFs) are beneficial investment options. Here are four benefits of using a systematic investment plan (SIP) to invest in MFs.
- Risk diversification
The cumulative corpus is invested in a diversified portfolio of debt and equity combinations to provide you returns on the investments. These returns are not as high as what can be earned by trading in equities directly but are higher than the earnings from RD, FD, and other low-risk investments.
- Professional management
Mutual funds are managed by experienced professionals. They are supported by an experienced research team to make investment decisions.
- Rupee cost averaging
You may invest as low as INR 500 in MF schemes through an SIP. When the price is low, you accumulate more units and vice versa. Therefore, the effective cost of your investment reduces.
- Investment discipline
MFs provide you with safe and secure investments for a smaller amount. Therefore, it helps you to follow an investment discipline and inculcate the regular habit of savings. Furthermore, it does not cause any financial distress.
Equity MFs allow you to invest in equities indirectly without the higher risks. You may invest in these products with an amount as low as INR 500 through an SIP. In simple terms, SIP is a plan where a certain amount is invested in your chosen MFs on a predetermined date.
If you are still not investing in MFs, start an SIP today and see your money grow.