If you are new to investments and mutual funds is what tops your list, starting with SIP helps you make investment a habit. In a Systematic Investment Plan (SIP), you invest a small amount of money in a mutual fund of your choice on a routine basis. A specific sum of money is deducted from your bank account at predetermined intervals and gets invested in a selected mutual fund scheme. You can choose the frequency of SIP investment that you are convenient with—weekly, monthly or quarterly. This flexibility associated with SIP makes it quite a sought after mode of mutual fund investment amongst the rookies.
Who is more likely to invest in SIP mutual funds?
- If you are a first-time investor
- If you have thought about investing in an equity-linked investment only recently
- If you have just started your career and do not have a huge sum at your disposal
Why is it better to invest in SIP mutual funds?
SIP investment is in demand, mostly amongst the first-time investors for a number of reasons:
- Rupee Cost Averaging:
Mutual funds are subject to market risks. You buy less units when there is a bullish trend and buy more units in the bear market. This way you reduce the cost per unit and, in turn, the overall cost of investment. There is no need to time the market.
- Low Invest:
For beginners, you can start by investing in SIP a monthly standard amount of Rs.500. Some funds even let you invest as low as Rs.100 per month.
You are completely at liberty to start or stop SIP at any point in time. The fund houses have no say whatsoever. You can run more than one SIPs simultaneously. You can choose the frequency of SIP at your convenience.
- Makes investment a habit:
SIP creates a habit of regular investment. Under the automated payment option, a fixed amount is deducted from your bank account at predetermined intervals and gets invested in a selected mutual fund scheme.
- Power of compounding: You get better returns in SIP by means of the power of compounding.
- Higher returns:
You get higher returns in SIP as compared to bank FDs, PPF or other conventional investments.
Types of SIP mutual funds:
- Top-up SIP:
Here, the investment amount can escalate on a regular interval depending on how well that particular mutual fund scheme is faring. This way, you get an edge by increasing your SIP amount on schemes that are performing well.
- Flexible SIP:
You can increase or decrease the investment amount here. Under the shoestring budget, you either cut back on a few instalments or skip it entirely for a few months. Inversely, you can increase the investment amount when you have a considerable amount at your disposal.
- Perpetual SIP:
When there is no end-date associated with your SIP investment, you are free to close your SIP as deemed fit. This type of SIP is known as Perpetual SIP.
- Trigger SIP:
It is considered to be the best mutual funds for SIP for seasoned investors. They choose their own index level, NAV or a start-date for SIP.
Criteria for choosing the best SIP plans:
- Fund house reputation:
Reputation of the fund house is crucial while selecting the best mutual funds for SIP. Choose a fund house that has tactfully handled the lows and highs of the market. A good fund house will not let the see-sawing market scenario exert influence on their investors.
- Value of assets under management:
The asset size of Rs.500 crore acts as a standard criterion for choosing a fund.
- SIP duration:
The more the duration of your SIP the more are the chances that your investment grows to a considerable amount.
- Stability of the fund:
Evaluate the performance (in terms of the return) of the fund you want to choose over the last three to five years. This would give you an idea of the stability of the fund.
- Know your risk-appetite:
If you have a high-risk appetite, go for equity funds. For a low-risk appetite, debt funds are a better option.
What are the best SIP plans in 2021?
If you consider SIP investment in 2021, you would want to do a bit of market research. As far as equity funds are concerned, for a 5-year performance, ICICI Prudential Technology Fund offered a 27.95% return and SBI Small Cap Fund offered a 12.83% return. In debt funds, Aditya Birla Sun Life Digital India Fund offered 27.01% and ICICI Prudential Multicap Fund offered a 9.17% return as per the 5-year performance. Choose the best mutual funds for SIP after thorough research.
Conclusion:Returns on SIP depend on how different funds are performing and how a fund manager is balancing the market fluctuation. Choose the best SIP plans based on these factors.