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.
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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: –
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.