Tips to choose best mutual funds for SIP

Finance

Investing in mutual funds is a very good option of investing in SIP. However, one must choose a scheme that is a consistent performer, has a good ranking over the past three to five years and gives good returns. This helps to make investment a good and risk-free affair.

Systematic Investment Plan or SIP is one of the best ways of investment in mutual funds. Investing in a mutual fund is perhaps one of the biggest decisions ever when it comes to investment options. Especially when we talk about long term investment, mutual funds are a very good option. However, while choosing a mutual fund to invest in, one needs to be very careful as it involves a decision that could have a huge impact on one’s life. People often select mutual funds based on the rankings received. This is not a very effective way of selection as the rankings are more than often rigged. There are several options to choose from the list of mutual funds available in the market today. Some promise high returns but that is not cent per cent assured. A good performer in the market today might not be a top performer tomorrow. Therefore a lot has to be thought about and gauged before investing in mutual funds.

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Factors that determine the choice of mutual funds:

There are many factors that need to be considered before deciding upon the best mutual funds for SIP. Some of them are listed below –

  • Objective – The objective of investment has to be clear in one’s mind before actually investing. One should clearly understand what he/she is doing and measure the risks that might crop up while choosing the best mutual funds for SIP.
  • Economic aspect – It is next to impossible to make a decision that is completely risk-free and profitable. However, one should always gauge what the economy is up to and decide on the mutual fund. Government’s decisions keep changing, therefore, one should study the economic trend and then invest.
  • Assets – A calculation of the net assets of a scheme helps to determine which is a good option for investment. A scheme with a lower than average AUM or Assets Under Management is definitely not a good option.
  • Scheme exit load – One should choose a scheme that comes with a fair percentage as exit load so that leaving a scheme mid-way is not too heavy on the investor.
  • Ranking – To an extent, the rankings do play a role to determine which scheme to invest in. Rankings are mostly based on its performance on returns. A few of the rankings are actually authentic. CRISIL provides ratings and as per surveys, they provide unbiased and genuine rankings. Schemes with good rankings are definitely better than those who are not able to hold a good position.
  • Expense ratio – Schemes that have an expense ratio of up to 1.5 per cent are good enough to be invested in.
  • Consistency – Mutual funds having a consistent performance in terms of returns and rankings should be given the utmost preference. Good and consistent performance over the past three to five years is a sign of a good scheme.

People sometimes tend to invest a huge amount at one go. This might prove to be risky sometimes. Therefore, it is always advisable to invest in SIP through investment in some mutual funds.