Investing is a crucial step towards securing one’s financial future, and among the various investment options available, Systematic Investment Plans (SIPs) emerge as a prudent choice for individuals. SIPs offer a disciplined approach to investment and wealth creation by providing one with a regular and easy way of investing. For anyone planning to begin investing, here is a brief guide to better understand SIPs and how to choose the best plans for it.

What is an SIP?
A Systematic Investment Plan (SIP) is a method of investing in mutual funds that follows a disciplined approach, meaning investors must invest a predetermined amount at regular intervals. Investors usually choose monthly SIP investments. The monthly investment amount for an SIP could be as low as Rs 500 and usually has no upper limit. This gradual investment strategy allows individuals to build wealth over time, promoting financial stability and growth.

Tips to choose the best SIP plans

Determine the investment goal
Before one begins investing in an SIP, it is essential for them to have clarity on their investment goals. They must determine if their aim is long-term wealth accumulation or a short-term goal with a more immediate objective. Some individuals also invest in SIPs for tax-saving purposes. Besides this, one must also carefully evaluate their risk appetite before beginning any investments. Only after doing so can one choose the ideal SIP plan that best aligns with their financial goals and risk appetite. For instance, one can opt for debt funds for minimum risk and equity funds for long-term growth.

Choose a type of fund
After determining the goal, one can choose the right fund type that best matches their plans. Debt funds are ideal for those with a low-risk appetite and wish for regular returns. Asset-based funds, also called equity funds, cater to the long-term investor. So, if anyone is looking for long-term SIP plans, they can consider equity funds. One can also consider balanced or hybrid funds, which provide a mix of equities and debts.

Check the fund’s performance
Another step to choosing the best SIP includes examining a fund’s historical performance. If one has one’s eyes on a fund, they must first assess its returns over the past 5 to 10 years and understand how well the fund has performed during market fluctuations. One can also compare different funds based on their returns in the past and their performance during market volatility. This way, one can shortlist the top 10 SIP plans and choose the plan that matches their goals and risk appetite. When it comes to investments, informed decisions based on historical performance are the way to go for a strong investment portfolio.

Choose a fund house and fund manager
Besides choosing the right funds, one must also consider choosing a good fund house and fund manager. To do so, one can examine the track record of the fund manager leading their investments. A strong track record reflects expertise. One must also look into their selected fund house’s scheme offerings and understand their investment approach. A thoughtful choice of both the fund house and manager can ensure great returns, while hasty decisions may lead to sizeable losses.

Take note of the costs involved
Beyond returns, one must also understand the costs associated with SIP investments before choosing a plan. One must evaluate exit loads, annual recurring charges like the expense ratio, and the percentage of the portfolio altered by the fund manager each year. One must be cautious of funds with a high expense ratio as these can hinder long-term performance. One must also understand the details of the expense ratio, which includes a composite of management fees and administrative costs, to make informed decisions and ensure the financial efficiency of their SIP.

A few points to note when investing in SIPs

Diversify the assets
For better returns and low risk, one must consider diversifying their SIP investments across equity, debt, and hybrid funds. In an equity-oriented mutual fund scheme, one can spread investments across sectors like large-cap, mid-cap, and small-cap funds. This strategy offers diversification benefits, ensuring stability from large-cap investments and growth potential from small and mid-cap funds. This diversified approach also helps manage risk while spreading investments across different market segments. For instance, if one is looking for the best SIP plan for 20 years, one must consider a well-diversified portfolio.

Stick to a fixed SIP amount
One must stay consistent by sticking to a fixed SIP amount when investing. This disciplined approach ensures a regular and systematic investment routine. By maintaining a fixed SIP amount, regardless of market fluctuations, one can grab opportunities during both high and low phases. This consistency contributes to the potential for long-term wealth accumulation.

Consider the inflation rate when setting a goal
When establishing financial goals for an SIP, one must factor in the inflation rate. Inflation reduces the purchasing power of money over time. By considering inflation in goal-setting, one can account for the rising cost of living, ensuring that their investment goals remain realistic and aligned with the future value of money.