5 Key Factors to Consider When Choosing SIP For Investing

Systematic Investment Plan (SIP) has become a popular way for investors to invest in mutual funds. By investing a fixed amount regularly, SIPs allow you to take advantage of rupee cost averaging and the power of compounding over long periods. However, with hundreds of mutual fund schemes available, how to choose SIP can be confusing. 

Here are 5 factors to keep in mind when selecting mutual funds for SIP:

1. Long-term Performance

The first factor is the long-term performance of the mutual fund scheme. Analyse the fund’s performance over at least 5-7 years. This will give you an idea of how the fund has performed across different market cycles. Choose mutual funds for SIP that have consistently performed well over the long term. Avoid funds that show inconsistent performance with extremely well-performing and poor-performing years.

Compare the returns with category benchmarks as shown in the table above. Select MF for SIP that has outperformed its benchmark more often than not.

2. Portfolio Composition

Analyse where the fund is investing the money. The sectors and stocks in a fund’s portfolio can significantly impact its performance. Prefer funds that follow a consistent investment strategy, even if they have underperformed in the short term.

3. Fund Manager’s Track Record

The fund manager plays a key role in the performance of a mutual fund scheme. Choose mutual funds for SIP where the fund manager has ample experience in investing in different market cycles. Also, check that the fund manager has been managing the scheme for at least 2-3 years. Avoid funds where the fund manager keeps changing frequently.

4. Risk Profile

Every investor has different risk tolerance levels. Match the level of risk you are willing to take to the risk profile of the fund. Risk-averse investors should opt for large-cap mutual funds, while those willing to take on more risk can choose mid-cap and small funds. Also, consider investing in a mix of funds with different risk profiles.

5. Fees & Charges

Compare the expense ratios of different funds before investing. Select an MF for SIP that offers a similar investment style and portfolio composition at lower costs. This may not significantly impact returns in the short term, but it makes a major difference in long-term returns from SIP.

Conclusion

So keep the above 5 factors to keep in mind when finding answers to the question – How to select MF for SIP – to make optimal mutual fund selections for systematic investments. Analyse both quantitative metrics and qualitative aspects of fund performance over long periods. This will help create a high-performing mutual fund portfolio that helps you achieve your financial goals.

Additionally, if you find yourself in need of liquidity but don’t want to disrupt your investment strategy, Fibe Loan Against Mutual Funds is a viable option. This loan allows you to access funds quickly by pledging your mutual fund units as collateral, offering you up to ₹10 lakhs* in instant disbursal. The best part? You only need to pay interest-only EMIs. It’s a smart way to keep your investments intact while managing urgent cash flow requirements.

FAQs

What are the benefits of investing through SIP?

Some of the benefits of investing through SIP are:

• Disciplined investing: SIP inculcates discipline to invest regularly without worrying about market volatility
• Power of compounding: Automatic monthly investments accumulate and compound wealth over long periods
• Rupee cost averaging: Helps reduce the average cost of fund units by investing a fixed sum every month

Can I modify my SIP amount over time? 

Yes, most mutual funds allow investors to modify the SIP amount and even tenure as per changing life situations and financial capacity. You have to just submit a request to modify the SIP to the mutual fund where you hold your SIP investment.

What is the ideal SIP tenure I should opt for?

The ideal SIP tenure is as long as possible, preferably 10-15 years or more. Longer SIP tenures allow your investments to realise the maximum benefits of rupee cost averaging and compounding returns. For retirement planning, you may need SIP investments of 20-25 years to accumulate a sufficient corpus. However, you can start small with just 3-5 years and then extend the SIP tenure.

What should be my ideal SIP amount?

There is no fixed ideal SIP amount. SIP allows starting small with just Rs. 500-1,000 per month. So, determine your financial capacity and investible surplus each month, after accounting for basic expenses. Most experts suggest investing 15-20% of your monthly income towards SIPs if your goal is long-term wealth creation. Increase the monthly SIP amount each year by 10-20%, depending on income hikes, to accelerate wealth creation.