SIP is now gaining popularity as a trusted mode of investment in mutual funds. It is a convenient option wherein the money gets deducted from your account on a monthly basis. But what is more important is to choose the right mutual fund scheme in India to invent in through SIP and also to decide when you should open SIP online. There are a few factors regarding which you need to understand before you start investing through SIP in Mutual funds.
1. Personal Financial Goal/Objective
Before you start investing, you need to have a clear financial objective or a goal. Investors usually have an aim such as saving taxes or earn some extra gains etc. Hence when it comes to investing in SIP, you should have a concrete goal. You should have the answers to questions such as why you need to invest in Sip, what is your risk appetite etc. once you decided your goal, classify them into short term and long term goals and invest accordingly.
2. Fund Returns
Returns are your ultimate motive. When you are in the planning phase and looking out for funds to invest in, you should check their performance. You can do this by checking the fund’s historical performance of the scheme and the fund manager and also the track record of the AMC. You might want to consider investing in a fund which has a good track record when the market has seen a rise but also a good control on the losses when there has been a dip in the market. This assessment can help you gauge the performance of the fund manager too.
3. Expense Ratio of the Fund
As the fund house manages your funds on your behalf, they charge a fee for it which is known as the expense ratio. This ratio has a considerable impact on the returns of the fund. If the expense ratio is high, then the returns which will take home will be lower. Hence while you are planning for a SIP investment, the expense ratio is an important parameter to focus on. You should ideally choose a fund which has a low expense ratio and a high return generation capacity.
The SIP that you start should be in conjunction with your bank. Choosing a monthly SIP is an ideal form of investment. This form of investment can help you with some sustainable yields. You can use a SIP calculator to calculate your monthly return on a SIP and get a rough idea of your final maturity amount.
“Mutual Fund investments are subject to market risks, read all scheme related documents carefully.”