A Systematic Investment Plan (SIP) is a mode of investment offered by mutual funds. It allows you to invest a fixed amount at regular intervals in a specific fund. This instils a disciplined approach towards investment and offers convenience since the process is automated. To choose the most suitable SIP plan, you need to keep a few things in mind. Here's a look.
Have a Solid Investment Objective
Mutual funds not only help you earn some additional cash parked in markets or save tax but are beneficial in many other ways. So, don't stick to these few objectives when investing in mutual funds. First, decide what you will invest for and whether for the short or long run. Then determine your risk appetite. Thus, build a concrete financial plan and only after that choose an SIP.
Select a Suitable Fund
How to opt for the perfect SIP plan? Learn about the various types of mutual funds so you understand which one suits you the most. These include equity (growth) schemes, liquid (or money market) funds, debt (or fixed income) funds, balanced funds, and more. If, for example, you have a low risk tolerance and want guaranteed returns, it's a good idea to go for debt funds.
Review the Fund Performance
Before putting your money in an SIP, it's crucial to study and compare the historical performance of different funds based on their returns. However, only considering the performance of the last few months won't suffice to determine the fund quality. It's good to observe the performance trends of funds for the last 5-10 years and compare them. Only then you can know which fund can face market volatility and meet your requirements.
Compare the Expense Ratios of Funds
It's important to know a fund's expense ratio. When this ratio is high for a fund, its performance may go down in the long run. If you don't know what an expense ratio of a fund is, it includes the administrative cost and management fee of a fund and is also called the annual fee. Before investing in an SIP plan, remember that a mutual fund with a lower expense ratio is a better choice. After all, even a small percentage ratio may cost you much in the long run.
Pick a Good Fund House
Did you think that choosing a fund house is not as significant as choosing a fund? Well, they are equally important. Before starting an SIP, learn about the schemes being offered by a fund house. Look for useful details like new fund offers, the investment approach and more. A new fund offer is how a fund house launches a new fund in a first-subscription way to finance the purchase of its securities. The decisions made by the asset management company can help you yield high returns. Conversely, a wrong call of the fund house can lead to immense financial losses and you may lose all you have invested. So, settle for a good fund house.
Make sure to consider the above factors to choose the best SIP plan for yourself.
