5 Factors to help you get to the Best SIP Plans

Avnish Meheta
Aug 23, 2017 · 3 min read
Best SIP Plan

Systematic Investment Plans (SIP) are one of the easiest and most convenient ways to get started with equity investments. However, it’s essential to choose the right SIP to get the most out of your buck.

Before you take a look at the factors, let’s first get the basics right.

Decoding SIP

A SIP (Systematic Investment Plan) is an investment option that lets you invest a fixed amount at regular intervals. This amount is then invested in equities or debt funds, depending on the nature of your plan. The major advantage of SIPs is that since you stay invested regularly over an extended period of time, the power of compounding increases your returns considerably.

However, the key is in identifying the best SIP plans to help you earn huge returns. Here are five factors that guide you in the right direction.

1. Investment Objective

Its the starting point for all investments. Before you choose a plan, you have to determine your goal. Ask yourself the following questions:

i. Are you considering a short-term or long-term investment plan?

ii. What is your risk tolerance?

Finding the answers to these two questions will help you figure out the right type of fund that suits your requirements. For instance, if your risk tolerance is low and you prefer consistent returns, then debt funds are more up your alley. On the contrary, if you want to enjoy high-returns and can have a high-risk factor, then opt for equity based funds.

2. Understanding the Type of Funds

A SIP mutual fund is an umbrella term that encompasses different types of funds. It’s essential to pick the right fund type that helps you achieve your financial goals. Let’s take a look at the broad classifications:

o Asset based SIPs

· Equity Funds — they are further subdivided into large cap, mid and small cap, sector and index based funds.

· Debt Funds — they are further classified as money market, fixed maturity and income based funds.

· Hybrid Funds — they are a mix of both equity and debt funds and offer the best of both.

o Structure based SIPs

· Open-ended — You can enter or exit these funds at any time without any penalties.

· Close-ended — These funds are available for investment opportunities only for a particular period.

3. Performance of the Fund

This is another critical factor that you must always consider before investing. Compare funds from different fund houses based on their performances over a period. Check out if a fund shows consistent performance irrespective of the market volatility. Stay clear of funds that perform well when the market conditions are favourable and deteriorate when the market is down.

4. The Stability of the Fund House

The performance of a fund is intricately linked to its managing fund house. Ultimately, the decisions are taken by the fund house. If the team doesn’t make the right calls, then you will end up losing money. Take a look at the scheme documentation, the investment approach of the fund house, the different plans offered and other such information.

Understanding all these will give you a clear picture to help you find the right fund house.

5. Miscellaneous Charges

Compare annual fee (the expense ratio) and exit loads when comparing funds. Choose funds that don’t charge you exorbitant fees for quitting the investment plan at any time.

Investing in the SIP plans is essential if you want your hard-earned money to provide you with huge returns. So take your time, do the research and pick the best plans to enjoy enormous gains.

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