How to Pick the Right SIPs for Mutual Fund Investments?

There’s no disputing the fact that SIPs are one of the most attractive long term investment options in the present time. SIPs allow you to enjoy the benefits of the equity markets while minimizing the associated risks of share market investments. Hence SIP investments are a great way to enhance your savings over a period of time. If you are planning to invest in SIP mutual fund schemes, you need to be mindful of certain factors in order to fulfill your financial goals. There are numerous SIP plans available in the market, hence picking the right one is essential. Here’s how to pick the right SIP investment plan: –

Consider Your Investment Objective

In order to choose the perfect SIP scheme, it is essential toconsider your investment objective. Ask yourself questions like, am I investing for the long term or short term? What’s my risk appetite? Knowing your investment horizon as well as risk appetite will help you determine the type of SIP you want to invest in. For e.g.: – if you are risk averse, you can opt for debt funds. On the other hand, if you are comfortable with the market-related risks, equity funds are perfect for you.



Know the Fund Type

Mutual funds are divided into various categories based on the risks and their structure. Mutual funds can be boiled down to the following types: –

1. Based on Assets
Equity funds – Equity funds majorly invest in equity instruments and carry higher risks compared to other mutual funds. However, the returns are also higher.
Debt funds – Debt funds majorly invest in debt instruments. While these funds don’t entail any risks, the returns are also moderate.
Balanced funds – Balanced funds invest in both debt and equity instruments. This is mainly done to counter the risks of equity funds with debt funds so that the investor can obtain steady returns.
2. Based on Structure
Open Ended – In an open ended fund, the investor can enter or exit without any restrictions.
Close Ended – Close ended funds are only available for a certain period of time, after which it closes and no further investments can be made.

Asses the Funds’ Performance & Returns  

Before investing in a SIP, you must carefully study the funds’past performance over a period of at least 3 to 5 years. Avoid funds that rise and fall steeply with the market trends. Choose funds that can remain somewhat stable despite market fluctuations.

Invest Through a Good Fund House

The decisions made by the fund house determines the fund performance. Therefore, make sure to go through the scheme information document carefully and find out pointers like the fund house’s investment approach and the performance of the different schemes offered.

Calculate the Expense Ratio

All mutual fund investments involve certain administrative costs and management fees that are charged annually. Funds that havea large number of assets under them generally have a lower expense ratio. Even a small difference in the expense ratio can have a significant impact on the long term returns.