SIP is an excellent way to invest in mutual funds in a disciplined manner. But with so many funds to choose from, how will select the best mutual funds for SIP? Let us help you out! We have created a list of 5 handy tips to help you pick the best.
If you want to be a disciplined investor and your goal is consistent wealth creation, investing in mutual funds through SIP is an excellent option. With returns as high as 20% in a year, mutual funds are currently one of the most popular ways to invest.
But with so many mutual funds from several different fund houses now available, how will pick a fund for your investment? With the help of the handy tips mentioned below!
- Know your investment goal
It is very important for an investor to know his/her objective with the investment when selecting best mutual funds for SIP. It can be buying a car, a home, a dream vacation, or retirement planning. The duration for achieving this objective can range from a few months to several years. It is usually recommended that you should go for equity funds for long-term goals and debt funds for short-term goals.
- Understand your risk appetite
Apart from the investment goal, it is also very important to understand your risk appetite. If you are an aggressive investor, go for a mid-cap or small-cap equity fund. If you have medium risk appetite, a large-cap equity fund or balanced fund can be excellent. And if you have low-risk appetite, debt funds will cater you well.
- Don’t just focus on the current performance of the fund
While the current performance of a mutual fund is an important consideration, it shouldn’t be the only consideration. Similarly, you should not select funds on the basis of their ratings by rating and research agencies. Check the performance of the fund in the past few years, and compare it with its benchmark and other top performers in the category when selecting.
- Know the fund manager
While there is an entire team to manage a mutual fund scheme, in the end, it is the fund manager who takes the decision. You can find information about the fund manager of a particular scheme on the official website of the fund house. Try to know the experience of the fund manager, performance of other funds he/she is managing, etc. to have a better insight.
- Avoid funds with high expense ratio
The expense ratio is money that a fund house spends on the management and distribution of a mutual fund scheme. Higher expense ratio will have an impact on your overall returns from that scheme. SEBI has capped the expense ratio, but it varies between schemes. So, make sure that you select one with lower expense ratio unless you are pretty sure about exceptional returns from a scheme with a higher expense.
No matter if you are new to mutual funds or have been investing in them for some time now, these tips will ensure that you select a fund for SIP which perfectly suits your investment style and provides maximum growth potential to your investment.