How can a student start to invest through an SIP?

I am a student and I want to invest Rs 500 per month via SIP for three years and my goal is wealth creation. Which funds should I invest?
--Kavita Shukla

An SIP or Systematic Investment Plan allows you to invest a fixed amount regularly in a mutual fund scheme, typically an equity mutual fund scheme. However, since you have an investment horizon of only three years, you cannot invest in equity mutual fund schemes through an SIP. We recommend investing in equity funds only if the investor has a horizon of at least five to seven years.

Investors with an investment horizon of three years are better off with bank accounts or debt mutual fund schemes. Debt mutual fund schemes may offer marginally higher returns than bank deposits, especially if you are ready to hold them for more than three years. However, since you are investing a modest sum, the difference would not be much. Also, there is no advantage of doing an SIP in debt mutual funds. Investing in equity mutual funds through SIPs are recommended to benefit from the volatility in the stock market and average the purchase cost. Debt market is not very volatile like the stock market.


You may still proceed investing in a short-term debt fund if you want to use this as a learning. However, a better idea would be to invest with a slightly longer horizon in an equity mutual fund. If you can hold your investments for at least five years, you can invest in an equity-oriented hybrid scheme (they are also called balanced schemes) like HDFC Balanced Fund through an SIP.