Why should NRIs consider mutual fund SIPs in India?
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Key Takeaways: Systematic Investment Plans or SIPs allow you to invest in mutual funds in instalments. In volatile markets, SIPs are a great way to invest because they allow you to mitigate your risk and build a healthy corpus over time. Read on to find out what makes SIPs a smart investment option for NRIs.
Systematic Investment Plans in mutual funds have emerged as one of the most popular ways for retail investors to participate in the equity markets. SIPs provide many benefits: It's a disciplined way to invest; you acquire shares at a lower average price; it enables you to reduce your risk, and it's a convenient way of growing your wealth.
Lower your cost
You can lower your acquisition cost thanks to rupee cost averaging.
When you make fixed investments at regular intervals in mutual funds, your average cost of acquisition per unit tends to be lower. Why? Because you get more shares at lower prices and fewer shares at higher prices.
Let's say you plan to invest INR 10,000 in a SIP every month.
In month one, the Net Asset Value (NAV) is INR 10 and you are allotted 1000 units.
Assume that the NAV drops to INR 5 in the next month. You are allotted 2000 units.
In the third month, the NAV rises to INR 16, and you are allotted 625 units.
You now have 3625 units for your investment of INR 30,000 translating into an average cost of INR 8.27 per unit. If you had invested the entire INR 30,000 as a lumpsum amount when you started, you would have purchased only 3000 units with NAV of INR 10.
No need to time the market
SIPs eliminate the need for you to time your entry.
Since you follow a fixed investment schedule in a SIP, you can avoid the complex task of figuring out the exact time to invest. As you saw in the above example, SIPs are ideal during volatile periods, allowing you to benefit from the fluctuations in market prices. No more guessing when the market has bottomed out.
Compound your gains
Earn profits on profits to create a corpus.
SIPs allow you to grow wealth over time, and the longer you continue to contribute towards your plans, the more your wealth grows. For the power of compounding to work its magic, keep an investment horizon of five years or more. Moreover, by investing in the best SIP plans for NRIs, you could end up creating a reasonable sum for your future.
Bring discipline into your investing
SIPs introduce regularity to your investments.
Many experts suggest that the best way to invest is to do so regularly. SIPs encourage a forced regularity and bring about discipline. Savvy investors opt for the convenient auto-debit option with their SIPs ensuring that they never miss out on their instalments.
Facilitating SIPs for NRIs
You'll need an NRE or NRO savings accounts to invest in NRI SIPs.
As an NRI interested in Indian SIPs, you will need a Non-Resident External Rupee (NRE) account or a Non-Resident Ordinary Rupee (NRO) account. You can use the sums parked in these accounts for your expenses and investments in India, including SIPs. You need to activate the auto-debit instructions to the account linked with SIP to ensure that your instalments are always paid on time.
Final Note: For most investors, SIPs in mutual funds are a great way to participate in the equity markets. They allow investors to accumulate and grow wealth while mitigating the risk of market volatility.
Disclaimer: This article has been shared purely from an information perspective and we recommend you conduct extensive research before proceeding.