Factors to Keep in Mind When Choosing SIPs


According to a data report by Association of Mutual Funds in India (AMFI), the mutual funds industry added 9.24 lacs Systematic Investment Planning (SIP) accounts on an average each month during the FY 2019-20, with an average SIP size of about ₹2,900 per SIP account. That is quite a number! The industry body further noted that SIP continued to be the preferred route for retail investors to invest in a mutual fund as it helps them reduce market timing risk.

SIPs allow you to save little-by-little regularly, which
gives you access to a more significant capital resource later in the hour of
need. After all, little drops of water make a mighty ocean, right?

An SIP promotes financial security where you need to put in regular installments of money periodically (can be weekly, monthly or yearly) at a secure place. SIP also provides with the benefit of a hassle-free process, flexible investments, regularity in saving, rupee-cost averaging and compounding powers.

Read more, Types of SIP in mutual funds


#1. Investment Goal

Usually, people invest with an objective. The time period to meet the goal might vary from a few months to years.

For instance, saving for a down-payment for a house can be considered as a short-term goal. While working out finances for children’s education and marriage, and one’s retirement would be a long-term goal. Think through your goals, and invest accordingly.

#2. Scheme Performance and Returns

The ultimate goal of any investment is returns. You should carefully look at returns given by the fund during different periods and compare them with the benchmark, usually an index, and other funds in the same category.

For equity mutual funds, you can check the long-term (three-five years) performance, while for debt funds you might consider to look at returns over the short to medium term

#3. Fund Type

Being acquainted with your risk appetite can also help you decide on the type of fund. If you are risk-averse and prefer a steady inflow of money, then you might consider choosing an SIP investment with debt funds.

While if you have the risk appetite to invest in the stock market for the long term, then you can select a SIP with equity mutual funds.

There are various other types of options available to choose from, namely, open-ended, close-ended, theme or sector-based, etc

#4. Fund House

When you invest in a mutual fund, you give a mandate to the fund house to manage the money on our behalf. It’s the decisions implemented by the fund house that might bring you closer to your goals and help secure your future.

Hence, looking for fund houses that have a long and consistent track record is very important.

#5. Entry/Exit Loads

This is the charge that you are liable to pay if you exit the mutual fund before a specified period. These small costs can have a significant impact on returns in the long run.

Different funds have different exit loads depending upon the
nature of assets held by them.

Wrap Up – Choosing SIPs

You can use an SIP calculator to get an estimate on the amount that your mutual fund investments would value in the future after the end of the tenure. This will help you to plan your finances better. Happy investing!

Article by Gaurav Jain

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