Things To Know About SIPs

Most investors want to make investments in such a way that they get sky-high returns as fast as possible without the risk of losing the principal amount. 

And this is the reason why many investors are always on the lookout for top investment plans where they can double their money in few months or years with little or no risk. 

However, it is a fact that investment products that give high returns with low risk do not exist. In reality, risk and returns are inversely related, i.e., higher the returns, higher is the risk, and vice versa. 

So, while selecting an investment avenue, you have to match your own risk profile with the risks associated with the product before investing. 

1. Direct equity

Investing in stocks may not be everyone's cup of tea as it's a volatile asset class and there is no guarantee of returns. Further, not only is it difficult to pick the right stock, timing your entry and exit is also not easy. The only silver lining is that over long periods, equity has been able to deliver higher than inflation-adjusted returns compared to all other asset classes. 

At the same time, the risk of losing a considerable portion of capital is high unless one opts for stop-loss method to curtail losses. In stop-loss, one places an advance order to sell a stock at a specific price. To reduce the risk to certain extent, you could diversify across sectors and market capitalisations. Currently, the 1-, 3-, 5 year market returns are around 13 percent, 8 percent and 12.5 percent, respectively. To invest in direct equities, one needs to open a demat account.

2. Equity mutual funds

Equity mutual funds predominantly invest in equity stocks. As per current Securities and Exchange Board of India (Sebi) Mutual Fund Regulations, an equity mutual fund scheme must invest at least 65 percent of its assets in equities and equity-related instruments. An equity fund can be actively managed or passively managed. 

In an actively traded fund, the returns are largely dependent on a fund manager's ability to generate returns. Index funds and exchange-traded fund (ETFs) are passively managed, and these track the underlying index. Equity schemes are categorised according to market-capitalisation or the sectors in which they invest. They are also categorised by whether they are domestic (investing in stocks of only Indian companies) or international (investing in stocks of overseas companies). Currently, the 1-, 3-, 5-year market return is around 15 percent, 15 percent, and 20 percent, respectively. 

3. Debt mutual funds

Debt funds are ideal for investors who want steady returns. They are are less volatile and, hence, less risky compared to equity funds. Debt mutual funds primarily invest in fixed-interest generating securities like corporate bonds, government securities, treasury bills, commercial paper and other money market instruments. Currently, the 1-, 3-, 5-year market return is around 6.5 percent, 8 percent, and 7.5 percent, respectively