Is SIP In Debt Fund A Good Idea?

By | March 19, 2018

There are certain factors you must consider while deciding on whether you can invest in debt funds via SIP. Read on to know more.

Is SIP In Debt Fund A Good Idea?

Systematic Investment Plan or SIP is a smart and hassle-free way to invest money in Mutual Funds. Through SIP, you can invest a pre-determined amount periodically and create wealth. When we talk of SIP, it is usually investment in equity and not debt fund. But, does it make sense to invest in debt mutual funds through SIP? First, let us understand why investing in mutual fund through SIP is a great idea.

Investing In Equity-linked Mutual Funds Through SIP Has Many Advantages

  • It inculcates the habit of disciplined savings as money gets debited automatically from your bank account monthly or quarterly.
  • It is a flexible mode of investment. You can increase/decrease the amount being invested or discontinue with it although it is advisable to continue it for a long duration of time.
  • You benefit from ‘Rupee-Cost Averaging’ and the ‘Power of Compounding’ when you invest in equity-linked mutual funds through SIP.

What is Rupee-Cost Averaging?

When you invest in equity-linked mutual funds through SIP irrespective of the market conditions, it helps you achieve a lower average cost per unit. In other words, SIP helps you buy more units when the price is low and lesser when the price is high.

Hence, rupee-cost averaging along with compounding benefit helps you earn higher returns through SIP over a long investment period.

What Are Debt Fund

Unlike equity-linked mutual funds, debt funds are investment pools whose core holdings are fixed-income investments. These debt funds will invest in fixed income securities such as Treasury Bills, Government Securities, Corporate Bonds, Money Market instruments, among others. These securities generally have fixed maturity date and pay a fixed rate of interest.

To understand if investing in debt funds through SIP makes sense, you must consider factors given below:


The basic reason SIP is recommended for equity-linked mutual funds is to surpass market volatility and average the purchase cost over a longer duration to maximise wealth. But in the case of investing through SIP in a debt fund, there is a difference as debt markets are less volatile compared to equity markets and the chances of losing a major chunk of your investment is minimum. Hence, experts generally do not recommend SIP in debt fund. Whatever volatility that happens in the debt market is usually due to fluctuations in interest rates. But over the past few years, debt market has been volatile and hence, experts suggest opting for SIP in debt fund to overcome these challenges.

Choose SIP For Debt Funds Depending On Your Investment Requirement And Risk-taking Ability

Debt funds are quite dynamic and extensive in nature. You have liquid funds to gilt funds to cover a range of debt funds. These funds will respond differently to the changes in interest rates. If the interest rates are rising, then returns will fall on the open-ended, long-term debt fund and vice versa. The benefit of SIP in debt fund will accrue only if you continue throughout the duration of the fund. Hence, experts suggest that you go for SIP in debt fund considering your investment requirement and how much risk you can entail.

Consider The Exit Load

If you do go for SIP in debt funds, be mindful of the fact that you will have some penalty to bear in case of early exit from these funds. This exit load can actually affect your returns from these funds. The alternative is to create a lump sum through SIP, and then depending on the interest rates move the money between various categories of debt funds.

What Are The Alternatives?

Alternatively, you can invest in short or long term Recurring Deposits or Public Provident Fund. But here too, there are challenges in terms of fixed returns, less flexibility, higher lock-in period, and one-dimensional investment.

If you wish to go for SIP in debt fund, then re-check your investment goals, your appetite for taking risks and your investment requirements. is a leading online marketplace in India that helps consumers compare and apply for Credit Card, Personal Loan, Home Loan, Car Loan, and insurance.

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About Adhil Shetty

Adhil Shetty is the Founder and serves as the Chief Executive Officer of Adhil has a Master’s degree in International Relations with a specialization in International Finance and Business from Columbia University in the City of New York, and a Bachelor’s degree in Engineering from the College of Engineering Guindy, Anna University. Adhil is an expert in Personal Finance (Car loan/Home loan and personal loan) and he majorly consults on investment and spends rationalization for the Indian loan borrowers. His guidance is number based with real time interest rate calculations and hence useful for consumer’s real time query.

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