5 Factors To Keep In Mind When Choosing SIP For Investing

Starting an SIP is one of the best investment decisions which fosters discipline and regularity in investment, but also requires proper planning.

SIP investment is a planned way to invest a predetermined amount at regular intervals which can start from Rs 500. Starting an early SIP can help you build better returns over a period of time, besides the benefits of rupee cost averaging helps you tackle market fluctuations even as a millennial. Here are 5 basic tips prior to your SIP investment plan that will help you through your investment journey.

1. Have A Concrete Investment Objective?

There are a lot of investors who invest in mutual funds just to save tax or they have some extra cash to park in markets. But mutual funds can do a lot extra than just only saving taxes, it can help you achieve your financial goals, whether short term or long term. Before investing in SIP, you need to have a concrete financial plan. Whether you are investing for the long run or for a short run or what is your risk appetite?

2. Choose Your Fund Type

To choose your best SIP plans, you need to know the different types of mutual funds that stand suitable for you. Like in case you are a risk-averse and wish to have constant returns then debt funds would be the right option for you.

Let’s have a look at the different funds:

• Assets based funds:

These are also known as equity funds or stock funds, here one invests in stocks and securities. These are further diversified into a mid-cap, small cap, sector funds and index funds.

• Debt funds:

These are also known as the bond funds where one invests in bonds or other in debt securities. Debt funds are further categorised according to their investment tenures as money market income and fixed maturity income.

• Balanced funds:

These are a mix of both, debt funds and equity funds.

• Structured-based mutual funds:

This includes both open-ended and close-ended funds. In case of open-ended funds, one can enter and exit the markets anytime while in close-ended funds, one can invest in the fund only for a specific time and once the New Fund Offer (NFO) closes, investments cannot be made.

3. Look Over The Fund’s Performance:

While choosing the best SIP to invest, it’s important to study the historical performance of the returns of those funds. It would be better to look over the trends for past 5 to 10 years and compare within the funds to understand whether they can withstand market volatility or not.

4. Choose A Fund House:

Choosing a fund house is equally important as choosing a fund. You need to know the schemes offered by your fund house before you intend to invest. You can look for different details like investment approach, number of schemes offered and many more. The decisions made by the fund house can help an investor to yield high returns while a wrong call of the fund house can end up in huge financial losses.

5. Expense Ratio:

Funds with high expense ratio can pull down your fund’s performance in the long run. The expense ratio of the fund is the management fee and the administrative cost, also known as the fund’s annual fee. Funds with lower expense ratio is a better go-to-option, as in the long run a small percentage difference may also seem to be too high.

Conclusion

Other than these options, a few investors may look for the Net Asset Value (NAV) of the funds while investing in a particular asset class. Funds also come with an exit load which is the amount that you pay while redeeming your funds. Exit load varies through different funds and looking for a fund with lesser exit load will help you get more returns on your investment.

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