Invest in Credit Risk Mutual Fund or not?
What are Credit Risk Funds? Why investors stay away from this investment? How do these funds work? How much is the risk in this investment?
Mutual fund has gained immense popularity as an investment option in the country in the past couple of years. More and more people are investing in mutual funds. One can start investing with only Rs 500 and can invest daily, weekly, monthly, quarterly, yearly or in lumpsums. The most preferred and easy way to invest in mutual fund is SIP. There are almost 1,470 different mutual funds are in the industry and each one accepts SIP.
What is SIP
SIP stands for systematic investment plan. That means a monthly payment that the investor can make to the specific fund. SIP makes a huge corpus after a specific tenure taking advantage of the power of compounding.
If one invests Rs 1,000 in an equity based mutual fund through SIP method for a period of 30 years, which yields 14% return, that would give the person Rs 55.6 lakh at the end of the tenure.
If SIP payment is missed
SIP follows rupee cost averaging method, and it helps investors to average his/her purchase cost and maximize the return.
In case if you missed a SIP due to financial crunch or any other reasons, the asset managing company would not cancel the SIP or penalise you for missing one or two SIP instalments.
Mutual fund houses cancel the SIP only if an investor misses SIP instalments for three-six consecutive months. However, banks could penalise the investor for dishonouring the auto-debit payments.
Some AMC also offers ‘SIP pause’ facility with a tenure ranging from one month to six months. Hence, the investor can pause SIP instalments up to six months and restart them again. But that is not a common practice among the AMCs.
Expert opinion
Investment in mutual fund through SIP method is most preferred avenue. “If investors are irregular with SIP instalments, they will not only accumulate lower wealth but also fail to attain long-term financial goals,” said Nilotpal Banerjee, a personal finance expert who handles mutual fund accounts of more than 300 individuals.
Indian MF market
India is the second populous country in the world but despite the boom in the number of investors, only a handful Individuals put their money in mutual funds. Less than 8% of the total population invest in mutual funds, of which 90% are through the SIP route.
As per association of mutual fund of India or AMFI data, the total number of folios, i.e. active mutual fund account stood at only 11.16 crore. The accumulated investment stood about Rs 23.47 lakh crore till September 30, 2021.