How to Choose the Best Fund for SIP?

Systematic Investment Plan (SIP) has opened up a new horizon for enthusiastic investors in India. A systematic investment plan helps an investor to invest a fixed amount in intervals (weekly/monthly/bi-monthly/quarterly/annually). To understand what is the best fund for you for an SIP investment depends on a number of factors. Investors can invest in equities, debts, and liquid funds under traditional mutual fund schemes through an SIP. It reduces the burden of an investor who wishes to invest in the market. Investors can invest an amount as low as Rs 500 per month in a scheme of mutual funds. Almost all the traditional schemes of a mutual fund invest in ELSS funds, debt funds, equity funds, liquid funds, and ultra-short funds directly online through a Systematic Investment Plan.

Everyone’s financial conditions and investment goals are not the same. You can hardly opt for a fund just seeing the short term return factors. If you want to invest in the long run, you have to choose a fund that has proven it less volatile in the longer run. The following are some of the factors that you may consider for determining the best fund for SIP in the present scenario. 

Eligibility: How much you can invest after fulfilling all your liabilities is the main thing that you need to determine before selecting a fund for investment. You can invest in the diversified portfolios of mutual funds through SIP. SIP is designed to offer flexible plans for people of all economical classes. Determine the amount that you can invest in regular intervals. Then you select your funds on the basis of your investment goals. 

Risk appetite: Risk appetite is an investor’s ability to take risks for his investment. There has always been risk in direct trading as well as mutual fund investments, You need to know how much risk you can bear before choosing a fund. At first, you have to know the risk factors for each and every fund when you are investing through SIP. SIP in debt funds might be less risky as investments in debt funds go directly to the bonds and securities of governments, government bodies, or big corporates. Liquid funds and ultra-short funds are also suitable for those investors whose risk appetite is very low. People having a big risk appetite might consider investing in equity funds. 

Investment Horizon: Investment horizon refers to the duration of your investment, the probable validity of your investment portfolio. Long term investors should seek equity funds. Equity funds in a shorter-term might appear volatile, but these give higher returns in the longer run. On the other hand, short term investments in SIP can be made at debt funds, liquid funds, and ultra short term funds for better return and fewer risk factors. 

Company profile: Reliability of an Asset Management Company depends on several factors like the track of return in the last few years, CRISIL rank, Assets Under Management (AuM), Net Asset Value (NAV), etc. 

Recent Performance: Before making the decisions of investments, you need to track the recent return history of any specific scheme of the mutual fund. Almost all the schemes of mutual funds now offer investment options through SIP. Return in several intervals in a month, year, three years, five years will help you to track the performance, consistency, and volatility of a fund. The fund, which has shown a consistent return, can be chosen because we can assume that the fund is managed by skilled professionals and the fund has a rich portfolio. Check how the NAV per unit developed over the course of time in a fund. Suppose that a fund’s NAV per unit value was Rs 10 five years ago. Now it’s NAV per unit is Rs 15. In the meantime, it had fallen to Rs 8 per unit. So this fund might be considered for the long run as it seems to be less volatile. 

Choosing the best fund for SIP is very important because one decision might be a determining factor for the fulfillment of your financial goal. SIP investments in mutual funds are goal based investments and are subject to market risk. You need to read all the terms and conditions carefully before investments. You need to do a proper study before choosing a fund for investments. Expert’s advice and guideline might be beneficial for a consistent return in the longer run. You may contact an AMFI registered mutual fund distributor for expert advice and investment opportunities in a suitable SIP scheme for you. You may check the website of SEBI to know more about the valid mutual funds in Indian market.