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A Systematic Investment Plan (SIP) is an effective way of investing in mutual funds(MFs). It eliminates the need to regularly time the markets while systemically building your wealth and assets.<\/p>\n\n\n\n
The fund management companies invest your money in diverse instruments like debt, equities, bonds, corporate securities, etc. And as with any market-linked investment vehicle, SIPs also come with certain risks.<\/p>\n\n\n\n
To become a well-informed investor, have a look at some of the risk factors involved with making an investment through a SIP.<\/p>\n\n\n\n
Liquidity risk involves delays in getting back your investments. Typically, this problem occurs when the sale volume outweighs the number of security buyers in the market. As a result, sellers find it difficult to redeem the investment money to you.<\/p>\n\n\n\n
Moreover, there can be schemes with a fixed lock-in period during which you cannot sell your investments. It\u2019s also hard to sell low-performing MF units in the market, resulting in your money being stuck.<\/p>\n\n\n\n
You\u2019ve probably heard it countless times \u2013 \u2018Mutual funds<\/a> are subject to market risks\u2019. The constantly changing market trends and price volatility directly affect a SIP\u2019s Net Asset Value (NAV). A sharp rise in the market leads to profits while a fall signifies losses.<\/p>\n\n\n\n Several factors influence this price risk including interest rate variations, inflation, natural disasters, policy reforms, inflation, political activities, etc. Generally, the chances of earning profits increases proportionally with your holding period; i.e. the risk is lower when you invest for a longer period.<\/p>\n\n\n\n Additional Read: <\/strong>How to Top up Your SIP<\/a><\/p>\n\n\n\n Your MF portfolio value may also get exposed to credit risk. The value of underlying security falls if it faces a downgrade by a credit rating agency. Therefore, it negatively affects the overall value of your portfolio.<\/p>\n\n\n\n Another risk factor of losses in SIPs arises when a scheme does not yield the expected returns. Your investment might depreciate with time if an MF has invested in underperforming securities and losing money. Thus, you will ultimately redeem lesser money than you had initially invested.<\/p>\n\n\n\n You can assess the fund management risk by looking at the past performance of an MF scheme. To plan a safer investment, you must do a SIP returns calculationbefore opting for a certain plan.<\/p>\n\n\n\n As most of the transactions take place electronically, there\u2019s always a risk of failed transactions at multiple touchpoints. Although the non-processing issue is rare and can be resolved, it can still cause stress and loss of funds if not dealt with promptly.<\/p>\n\n\n\n Additional Read: <\/strong>Why are SIPs an Ideal Choice for the First-time Investor?<\/a><\/p>\n\n\n\n Looking to start your investment journey? Tata Capital\u2019s Moneyfyapp<\/a> is an easy and smart solution for all your financial needs. Our app lets you compare and invest in a wide range of mutual funds through SIP<\/strong>s anytime, anywhere! Choose a scheme that aligns with your risk appetite and investment goals. <\/p>\n\n\n\n We also offer multiple insurance schemes and even loans. Moreover, our online SIP calculatormakes it effortless to plan your investments quickly. So, what\u2019re you waiting for? Download the app and get your money in action today!<\/p>\n\n\n\nCredit risk<\/strong><\/h2>\n\n\n\n
Depreciating investment value<\/strong><\/h2>\n\n\n\n
Technology risk<\/strong><\/h2>\n\n\n\n
Want to start SIP? Just use Tata Capital\u2019s Moneyfy app!<\/strong><\/h3>\n\n\n\n