Steps To Choose Best Mutual Funds For SIP Investment

The first and foremost step towards selecting and investing in SIP under a Mutual Fund Scheme is to understand your investment objective. Why are you making the investment? Is it for fulfilling a short-term or a long-term goal? What kind of risk can you take with this investment? If you have a low appetite for risk, then it is ideal to invest in a debt mutual fund through a SIP. If however, you are an aggressive investor, equity mutual fund offer a promising rate of return.

Evaluate all the costs that you have to incur like exit loads (if any) which are charged when you exit the investment within a year from the date of purchase. Also look at the annual recurring charges like the expense ratio as these costs eat into your returns.

You need to monitor the fund's portfolio turnover for the ideal sip, i.e. the percentage of the portfolio that the fund manager changes through sales and purchases every year. A higher turnover results in higher costs (brokerage, taxes, etc.) at the mutual fund scheme level, which will ultimately be borne by the investors thereby reducing the rate of return.

Three broad categories of mutual fund schemes are equity, debt and hybrid funds (which invest in both equity and debt). In order to diversify your investments and reduce risk, you can invest across different asset classes via mutual funds. Also, even if you are investing in an equity oriented mutual fund scheme, investments can be made across sectors like large cap fund, mid cap fund and small cap fund. This provides diversification benefits, stability from large-cap and growth from small and mid-cap funds.

It is important to invest in a fund that has a strong system and is process-driven rather than a fund that relies solely on the expertise of a 'Star Fund Manager' when you pick the ideal SIP to invest. However, it is also prudent to look at the fund manager and his or her track record.

It is important to invest in a fund that has a strong system and is process-driven rather than a fund that relies solely on the expertise of a 'Star Fund Manager' when you pick the ideal SIP to invest. However, it is also prudent to look at the fund manager and his or her track record.

As with all other investments, even the best Mutual Fund Schemes for SIP come with their own risks. However, if you conduct proper due diligence by following the pointers mentioned above, risks can be contained and your investments can achieve optimum returns.