Get the Tata Capital App to apply for Loans & manage your account. Download Now

Blogs SUPPORT
Loans For You
Loans for Business
Investment
Insurance
Apply
Quick Links for loans
Quick Links for Insurance
Investment
Offers Quick Pay
Back

Equipment Finance

Avail Digital Equipment Loans
up to Rs. 1 Crore

  • Attractive ROIs
  • Customizable Loan tenure
Know More
Back

Equipment Leasing

Avail Leasing solutions
for all asset classes

  • Up to 100% financing
  • No additional collateral required
Know More
Menu  
 
Apply Now

Tata Capital > Blog > Why SIP in Debt Funds Could be Essential?

Wealth Services

Why SIP in Debt Funds Could be Essential?

Why SIP in Debt Funds Could be Essential?

Risk-averse investors invest in debt fund investments to minimise the risks associated with investing. Many also tend to make lump sum investments. The reason is simple. Lump sum investments may offer protection from losses due to interest rate fluctuations.

But doesn't mean that new investors must avoid SIP or systematic investment plan-based investments altogether in debt funds. In this blog, we discuss two instances wherein SIPs can be useful.

Two situations when SIP in debt funds could be essential

#1. If you want to further reduce investment risk

Debt funds may have lower risk than equity funds, given the latter's susceptibility to market fluctuations, with their volatility going up with time.

For investors who are unaware, there are three kinds of risks associated with debt mutual funds:

Interest rate risk: Interest rates are inversely proportional to bond value. Longer the bond's maturity period, more likely it will be exposed to interest rate fluctuations. So, the returns will be affected when you invest for a longer duration with the interest rate falling at maturity.

Credit risk: Debt funds help you invest in institutions after checking their credit rating. Naturally, as a risk-averse investor, you'd invest with an institute with a high credit rating. Although credit ratings can change quickly and that can have an impact on your returns.

Liquidity risk: Fund managers often might be forced to sell securities at a loss if the demand for the securities is lesser and you've agreed to sell the holdings before maturity. Again, this results in a loss of returns.

Remember, when you make a lump sum investment, you invest all your money at once and get a one-time return at the end of the term. This means the market conditions affect all your funds when your term ends. But when you invest through SIPs, you earn the benefit of rupee-cost averaging, especially over the long term. This lowers investment risk significantly.

#2. If you want a high liquidity investment option

When you make a lump sum debt investment for a specific term and wish to withdraw your funds before the given tenure, you might be charged an exit load fee. This could be a large amount depending on your investment amount.

In contrast, if you invest the same amount through SIPs in the same debt fund, the exit load charged may be lesser. This is because every investment through SIP is a new purchase, so the exit load fees get calculated based on the redemption amount and the SIP instalment.

If you’re a beginner, considering investing in debt funds through a Systematic Investment Plans would benefit from consulting a professional before beginning your investments. Tata Capital Wealth can help you with this. We provide investing help as well as tailored financial products suited for your investment goals.

Not just that. You can rely on us to  grow your finances with insights from our skilled wealth managers, gain research insights through our platform and enjoy exclusive privileges as well. Visit our website to learn more.

Download Moneyfy App Today
Disclaimer

Leave a Reply

Your email address will not be published. Required fields are marked *

Most Viewed Blogs

Trending Blogs

Calculator

Personal Loan EMI Calculator

Personal Loan EMI Calculator
Home Loan EMI Calculator

Home Loan EMI Calculator
Business Loan EMI Calculator

Business Loan EMI Calculator
Used Car Loan EMI Calculator

Used Car Loan EMI Calculator
Two Wheeler Loan EMI Calculator

Two Wheeler Loan EMI Calculator
Loan Against Securities Calculator

Loan Against Securities Calculator
Loan Against Property Calculator

Loan Against Property Calculator
More Tools
Our Subsidiaries
Our Other Websites

Important Information

Investor Information

Visit us on:,Visit us on: www.tatacapitalmoneyfy.com,www.tatacapitalmoneyfy.com

Our Private Equity Funds

Amalgamated Companies

Top Branches

Most Important Terms & Conditions - Home Loans

Download in your preferred language

Download

Policies, Codes & Other Documents

Most Important Terms & Conditions - Home Loans

Download in your preferred language

Download

Tata Capital Solutions & Services

Uh oh, something went wrong

Please try again later.