The term SIP or Systematic Investment Plan is often synonymous with equity funds. While it’s a great idea to break your long-term equity investments into periodic investments, nothing should stop you from doing the same with debt funds. Yes, we are talking about investments in debt funds via SIP. Before we dive further into that, let’s quickly recall what debt funds are.

What are debt funds?

Debt funds are a type of mutual funds that invest in fixed-income securities such as commercial papers, government securities, corporate bonds, treasury bills, and money market instruments. These mutual funds have a pre-decided maturity date and interest rate that an investor earns on maturity. The returns on debt funds are usually unaffected by fluctuations in the market. Hence, debt securities are considered to be low-risk investment options.

SIP in debt mutual funds

Several investors are in the dark that only lump sum investments are appropriate for debt funds. However, little do they know that they can also invest in debt mutual funds via SIP mode of investment. You can choose to invest via the SIP in debt funds if-

  1. You wish to invest your regular savings in a disciplined and structured manner to cater to your long-term financial goals.
  2. You have a long-term investment horizon and wish to benefit from the power of compounding. Compounding is basically the interest earned on interest. Compounding, also referred to as the eighth wonder of the world helps in wealth creation over a long duration.
  3. You wish to profit from the volatility in markets through Rupee Cost Averaging. Debt mutual funds are market-linked securities and their prices could oscillate condition to the price sensitivity of their underlying assets or interest rate changes, etc.

How does a SIP in debt funds help?

An investor is likely to invest in debt mutual funds either to attain a financial objective that needs to be fulfilled within the following 1 to 2 years or for their long-term debt allocation to balance their investment portfolio.

If your requirement is focused more on the former part, you will need to first evaluate how much you need and by when you are in the dire need of funds. One can do this by using an SIP calculator.

SIP investments allow an investor to put aside a smaller, insignificant amount of money each month towards a financial goal that is at least a few years away. While SIPs in equity investments are entitled to enough time to grow their investments, SIPs in debt funds have more to do with managing one’s behaviour. With the SIP deducting the money each month automatically, one doesn’t get the chance to spend their funds unnecessarily. SIP investments help to lock in one’s savings without any compromise.

If you are looking to invest in debt funds via SIP for a long-term horizon to fulfill goals such as balancing risk in the investment portfolio or creating an emergency fund, SIP in a debt fund or even a liquid mutual fund is ideal. Make sure to invest in mutual funds only after carefully analysing your investment portfolio and aligning it with your risk profile, financial goals, and investment horizon. Happy investing!