Suppose, one does not want to invest a big amount at once, then one could invest small amounts at regular time intervals e.g. Rs. 500 per month could be invested in mutual fund. Investment could be done monthly or quarterly. This
way of investment is called SIP. SIP develops discipline of savings. SIP is a good option which in long term can achieve one's financial goals. Investment in mutual funds through SIP for a long term is beneficial. It protects investor from market fluctuations. One should invest in mutual fund for minimum of 3 to 5 years to get better returns and it is best if investment is for 10 to 15 years.
Benefits of Mutual Funds
• Professional fund managers .
• Diversifications of funds.
• Transparency and sufficiently safe investment.
• Liquidity - redemption of units can be done.
• Limited risks.
• Advantage of long term and short term gain.
• Investments in funds like ELSS are admissible for deduction under section 80C of income tax.
Ex. (1) If the total value of the mutual fund scheme is Rs. 200 crores and 8 crore units are issued then find the NAV of one unit.
Solution : NAV = Rs. 200 crore / 8 crore units =Rs. 25 per unit.