Investing in mutual funds does not necessarily require a high-risk appetite or large capital. Mutual funds offer flexibility for investors across the risk spectrum through equity, debt and hybrid funds. You can choose the best mutual funds for SIP and start with sums as low as ₹500 through Systematic Investment Plans (SIPs) that facilitate periodic investments into funds.
Therefore, misconceptions about compulsory high risks and capital should not prevent exploring best return mutual funds. Their variety of options and disciplined investment mechanism via SIPs makes them accessible for both risk-averse and risk-taking investors alike. Know more about how to choose top return mutual funds for SIPs.
Steps to Choose Best Mutual Funds For SIPs
What is SIP investment and how to choose the best mutual funds for SIP are common questions among investors. Here are the steps to follow to find the best mutual funds for SIP:
1. Identify Your Investment Objective
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Be clear on your targeted investment timeline and the goal you are aiming towards – retirement corpus, child education, home purchase or another financial milestone. Individuals with longer 7-10-year investment horizons generally benefit from equity mutual funds that generate higher inflation-beating returns over extended periods despite higher market volatility.
2. Identify Your Risk Appetite
Assessing your personal willingness and ability to handle risks associated with high return mutual funds investing is key. Equity funds carry higher risk due to stock market volatility and higher return potential around 12-15% CAGR over a longer 7-10 year period.
Debt funds offer conservative but moderate 6-9% CAGR returns over shorter durations with less risk. Choose mutual fund types that align with your risk tolerance and liquidity needs.
3. Choose Your Fund Type
To determine the best SIP mutual funds for you, it is essential to understand the core categories and types that align with your financial needs and risk profile:
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Equity /Asset-Based Funds
Also known as stock funds, equity mutual funds primarily invest across company shares, securities and derivatives. They are further diversified into large cap funds, mid & small cap funds focused on company size and sector specific funds targeting particular industries. Equity funds carry higher risk but can generate inflation-beating returns over longer durations. This is one of the best mutual funds for SIP for long-term investing.
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Debt / Fixed Income Funds
Also referred to as bond funds, debt mutual funds invest predominantly in fixed-income instruments like corporate bonds, money market instruments and other debt securities issued by companies and government. Debt funds offer low to moderate returns but with greater capital preservation and liquidity versus equity.
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Hybrid / Balanced Funds
Hybrid mutual funds allocate their corpus across equity and debt assets. The mix depends on whether they are equity, debt, or balanced-oriented. This blend helps balance the risk-return profile. They aim to generate better returns than fixed-income funds with lower risk than pure equity funds.
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Evaluating the characteristics of each mutual fund type will help guide the selection of appropriate sip plans, such as best sip plan for 5 years or best sip plans for 1000 per month based on your investment horizons, liquidity needs and risk tolerance. Prioritize funds that align with your overall financial objectives.
4. Review the Fund’s Past Returns
Rather than just picking funds blindly for your SIPs, look at how well the fund has performed over the past 5-10 years. Check if the fund has generated consistent returns over market ups and downs. This performance history during volatile periods can give you confidence on whether the fund can continue delivering in the future as well.
5. Understand the Fund House Approach
It’s not just the individual fund but also the overall fund house and their investment philosophy that matters. After all, it is the fund house team that makes all the investment decisions that impact returns. Analyze aspects like their general approach, risk appetite, portfolio diversity across schemes, past performance over decades, etc., before trusting them with your money.
6. Watch out for Expense Ratios
Funds tend to deduct annual management fees and expenses from your investment corpus – an expense ratio. The higher this ratio, the lower your actual realised returns. Even a tiny 1% difference can hugely impact the final corpus over 20-30 years. So, compare expense ratios across funds and choose the ones with lower fees.
If you are a new investor or have been investing for a long time, following these steps will help yo find the best mutual funds for SIP.
What are the Key Benefits of SIPs?
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If you select best mutual funds for SIP, it offers several advantages:
1. Starts with Minimal Investment
The most significant benefit of SIPs is that they allow starting investments with as little as ₹500 per month. This presents an affordable way to invest regularly for long-term goals while lacking a substantial lump sum. Investors can also increase contributions over time as income grows.
2. Power of Compounding
Compounding can significantly grow wealth over long durations. SIPs enable harnessing this by making regular investments well in advance of goals. Starting SIPs early ensures your returns start earning returns, multiplying the corpus exponentially.
3. Rupee Cost Averaging
SIPs automatically invest fixed amounts regularly across varied market levels. By investing more when prices are low and less when prices are high, SIPs’ average overall unit purchase costs benefit investors, especially during volatility.
4. Flexibility & Convenience
Investors can opt for convenient SIP dates aligning with salary cycles. Options like weekly, monthly or quarterly schedules offer flexibility. Some funds also offer customized variations in contributions responding to pre-set index triggers.
5. Higher Returns
Equity mutual fund SIPs have the potential to generate substantially higher inflation-beating returns over the long term vis-à-vis traditional instruments like Fixed Deposits. Professional fund management ensures striving for maximum returns.
Therefore, the best mutual funds to invest in 2024 for SIP are a disciplined, convenient mechanism for investing smaller amounts to meet long-term life goals while taking advantage of rupee cost averaging and compounding.
Conclusion
Choosing the best mutual funds for SIP for 1 year or more requires a rigorous approach that assesses multiple parameters around historical returns, fund manager pedigree, investment strategy alignment, costs, ratings, and risk factors.
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By following the research process outlined in this post, Indian investors enhance their chances of identifying the best mutual funds for SIP in India to meet their financial objectives via SIPs.
FAQs
1. What parameters should be considered when picking best mutual funds for SIP?
The fund’s historical returns consistency, underlying portfolio composition, fund management team’s expertise, risk factors, investor suitability, SIP flexibility, and fees are major aspects.
2. How do you evaluate a mutual fund’s past performance?
Analyse year-on-year returns over longer durations like 5-10 years. Choose funds that have consistently performed well across market cycles without drastic volatility.
3. How do we identify funds aligned to investment goals?
Review scheme objectives, portfolio composition, and risk metrics to determine whether your financial needs—be they capital growth, regular income, or tax savings—match the fund’s offerings.
4. What SIP frequency should one opt for?
SIP installment facility is offered across various frequencies—monthly, quarterly, half-yearly, etc. Monthly SIPs allow rupee cost averaging into the same fund at regular small intervals for convenience.
5. How to shortlist funds finally?
Shortlist funds that strike the best balance across past returns consistency, portfolio strengths, fund managers’ capability, risk factors, scheme objectives, SIP flexibility, and fees.
