mutual funds

Mutual funds have emerged as one of the most popular investment avenues for individuals seeking to grow their wealth over the long term. The common ways of investing in mutual funds include lumpsum investments and Systematic Investment Plans (SIPs), with SIPs gaining significant traction over the last few years due to the simplicity and effectiveness it has offered to retail investors.

According to the data by the Association of Mutual Funds in India (AMFI), the overall inflows through SIP surged to ₹2 lakh crore in 2023-24, which is a year-on-year increase of 28%. This article aims to acquaint you with various aspects of SIPs and the steps to select the best mutual fund scheme for your SIP investment.

What is SIP in a mutual fund?

A SIP, or Systematic Investment Plan, is a method of investing in mutual funds wherein an investor contributes a fixed amount of money at regular intervals, typically monthly or quarterly. These investments are directed towards a mutual fund scheme of the investor’s choice. SIPs offer the advantage of disciplined investing, allowing investors to commit to a regular investment schedule without the need for a large initial sum.

How does SIP work?

When you invest in SIP, you buy more units when the prices are low and fewer units when the prices are high. Over time, this averaging out can potentially reduce the impact of market volatility on your investments.

Online SIP calculator tools can help investors estimate the potential returns on their SIP investments based on factors such as the investment amount, duration, and expected rate of return.

What are the benefits of investing in an SIP?

Invest in mutual funds through SIP as it offers several benefits. It instils financial discipline by encouraging regular investments. SIP also allows investors to benefit from the power of compounding, wherein returns generated on investments are reinvested to generate further returns. Additionally, SIP provides flexibility, allowing investors to start with small amounts and increase their investments gradually over time.

4 steps to select the best mutual fund scheme for your SIP

1. Define your investment goals:Before selecting a mutual fund scheme for your SIP, it is essential to define your investment goals and risk tolerance. Whether you are investing for wealth creation, retirement planning, or any other financial objective, understanding your investment goals will help you choose a suitable mutual fund scheme aligned with your objectives.
2. Research and shortlist funds:Conduct thorough research on different mutual fund schemes available in the market. Evaluate factors such as the fund’s track record, fund manager’s expertise, investment philosophy, and expense ratio. Shortlist funds that match your investment objectives and risk profile.
3. Assess performance and consistency:Analyse the historical performance of the shortlisted mutual fund schemes. Look for consistency in returns across various market cycles. Avoid selecting funds solely based on recent performance, as past performance may not guarantee future results.
4. Diversify your portfolio:Diversification is key to managing risk in your investment portfolio. Spread your investments across multiple mutual fund schemes representing different asset classes such as equity, debt, and hybrid funds. This diversification helps minimise the impact of market fluctuations on your overall portfolio.

How to invest in an SIP?

Investing in an SIP is a straightforward process. You can invest in SIPs through various channels, including mutual fund websites, online investment platforms, and mobile applications offered by mutual fund companies. Simply choose the mutual fund scheme, select the SIP option, provide the necessary details, and set up the frequency and amount of investment.

Conclusion

SIPs offer a convenient and disciplined approach to investing in mutual funds, making them suitable for both seasoned investors and beginners. By following the steps outlined above, you can select the right mutual fund scheme for your SIP investments, thereby laying a solid foundation for achieving your financial goals in the long run. Remember, investing is a journey, and staying committed to your investment plan is key to reaping the benefits of SIPs over time.

Investing your hard-earned money is a fundamental step towards achieving your financial goals and thus securing your future. While there are various investment options available, mutual funds have gained immense popularity due to the convenience of investing, diversification, and professional management.

The Evolution of mutual funds India –

The concept of mutual fund in India dates back to 1963 when the Unit Trust of India (UTI) was established. UTI was the country’s first mutual fund and played a pivotal role in popularizing the idea of mutual fund investments among Indian households. In 1993, with the liberalization of the Indian economy, the mutual fund industry underwent a transformation. The industry was opened up to private sector players, leading to the entry of several asset management companies (AMCs).

Today, the mutual fund India industry has witnessed tremendous growth, with a wide range of fund options catering to different investment needs and risk profiles.

Who should invest in mutual funds?

Here is a breakdown of who should consider investing in mutual funds:

Beginners and novice investors: Mutual funds are an excellent choice for those who are new to investing or lack expertise in financial markets. They provide an easy entry point into equity investing and allow individuals to benefit from professional fund management.

Risk-averse investors: Conservative investors who prioritize capital preservation and are hesitant to take on too much risk may find debt mutual fund schemes suitable. These funds primarily invest in fixed-income securities, offering more stability compared to equity funds.

Long-term investors: Investors with long-term financial goals, such as retirement planning or building wealth over several years, can benefit from equity mutual funds. These funds have the potential for higher returns over extended periods, helping investors achieve their objectives.

Investors wanting to save taxes: Individuals looking to save on taxes can consider investing in equity linked savings schemes  or ELSS, a type of equity mutual funds. ELSS investments qualify for deductions under Section 80C of the Income tax act in India. 

Investor who are cost conscious – Investors who are looking to invest in mutual funds but do not want to incur high cost, may look to invest in ETF. ETF schemes are passive funds with low cost and are traded on the stock exchanges.

Diversification seekers: Investors who want to spread their risk across various asset classes and sectors can achieve diversification through mutual fund investments. A single mutual fund can hold a diversified portfolio of stocks, bonds, or other securities.

Goal-oriented investors: People with specific financial goals, such as buying a house, funding their children’s education, or going on a vacation, can use mutual funds as a tool to systematically save and grow their money.

Liquidity needs: Mutual funds India offer easy liquidity, allowing investors to redeem their investments with easy liquidity. Upon redemption, liquid fund proceeds are credited next day and for other funds, it is generally on T+3 days basis.

Retirees: Retired individuals looking for a source of regular income or a way to preserve their savings can consider a mix of debt and equity mutual funds or can draw fund from current mutual fund investments by way of SWP.

Mutual funds India have become an integral part of the investment landscape, offering opportunities for wealth creation, tax benefits, and diversification through various mutual fund schemes. By understanding the various types of funds, their benefits, and the investment process, individuals can make informed decisions to achieve their financial aspirations. Remember that while mutual funds offer professional management, it’s crucial to conduct due diligence and select funds that suit your financial goals and risk tolerance.