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Best SIP Plans for Students

Best SIP Plans for Students

As financial awareness has increased in our country, a lot of people have started realizing the importance of financial planning and start investing early. There has been a shift from physical assets such as real estate to financial assets such as stocks and mutual funds. Many students do part-time jobs, earn from social media or work as freelancers to support their studies. Most are often confused on where to invest their money. At this age, there is an inclination to spend on movies, parties and shopping but starting investments at an early age gives you definite edge-you can retire early, achieve financial freedom, fulfill your goals and pursue your passion.

Top Mutual Funds to Invest in Now

Investing in mutual funds through Systematic Investment Plans (SIPs) has caught on with many youngsters. Let us first understand what a SIP is and how it is useful. As the name suggests, an SIP is a systematic or disciplined way of investing in mutual funds. You choose a fixed amount and select a date every month and the money gets automatically debited from your account and gets invested in the chosen mutual fund scheme. The advantages are:

  • One can start with a small amount, as low as Rs 500
  • With a small investment, you get to own a whole bunch of stocks in a portfolio
  • The expertise of a fund manager who is a professional in managing money
  • Low cost-you just pay about 2% annually.
  • Higher returns- for the last two decades, returns have been in the range of 12%-16% for different funds which are higher than any other asset class
  • Ease of investing – you can now start an SIP online conveniently
  • Achieve goals such as buying a house, marriage, car, travel, etc and decide on the investment amount accordingly.
  • Benefits of rupee cost averaging and compounding.
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Since you are in late teens or early twenties, you can afford to have a long-term time horizon and the SIP plan should be designed accordingly. Being young, you can also afford to take higher risk, therefore, we would recommend most students to invest a major chunk in mid and small-cap funds. These funds invest in medium and smaller sized companies which have a higher growth potential. The growth potential for a large company is limited since it has already achieved a certain size, but mid & small-cap companies can grow at a faster pace and become large. This transition from being a mid/small to large would mean higher revenues, more profits and a higher increase in stock price. Hence, these mutual fund schemes deliver good returns over a longer period.

We recommend the following SIP plans for students, below mentioned are the fund names with equal allocation to each (25% in each fund) and past track record (in % terms):

Fund NameLast 5 yearsLast 7yearsLast 10 years
Kotak Emerging Equity6.7315.7812.03
DSP Midcap8.9216.6612.65
SBI Small Cap10.5020.9216.56
Nippon Small Cap7.7419.43N.A.*

*The last fund in the list has not completed 10 years since launch.

As you can see all these funds have returned more than 15% in the last 7 years and more than 12% in the last 10 years. These returns cannot be matched by any other asset class- a fixed deposit gives you 6%-7%, real estate returns in the last 5-7 years have been mostly negative. Therefore, this is the best SIP plan for students and should help create wealth over the long term. Once can expect 12%-15% annualized returns in the next 10-20 years from these funds.

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How to Start an SIP?

Starting a SIP is very convenient these days with the advent of digital means of investing. One also has the option of investing offline, these are the steps to follow:

  1. Get your PAN Card made if you don’t have one, the same can be done online by visiting www.incometaxindia.gov.in
  2. Next, become KYC (Know Your Customer) compliant. It is mandatory to be KYC verified to invest in mutual funds. One can do so by visiting any nearest bank, mutual fund, or RTA (CAMS & Karvy) office and filing up a simple form along with a photo, identity proof, address proof and a copy of PAN card.
  3. Getting KYC done is just a one-time job and it works for all mutual funds.
  4. You can now visit the mutual fund website individually to invest online or also log on to www.wishfin.com where you can invest in different funds in one go.
  5. If you intend to invest offline, you can do so by visiting the individual mutual fund offices and submitting your investment forms. This could be cumbersome and requires time.
  6. We would recommend you start your SIP online.
  7. Once done, you will be able to view your portfolio under your login.

Conclusion

Students have a great opportunity to amass wealth with time on their side. SIP in mutual funds is the best way to do so and as recommended one should invest in mid & small-cap funds. This is especially a good time to start since owing to COVID-19, markets have fallen and are giving a good opportunity to enter at lower prices. During this investment journey, there will be times when you will feel perturbed by the volatility, but it is important to have a cool head and stay invested.

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