SIP Mutual Funds: Five Factors To Keep In Mind When Choosing SIP For Investing

The Systematic Investment Plan (SIP) entails investing small amounts consistently over time instead of investing a large sum in a single transaction, aiming to generate higher returns

SIP has become increasingly popular among Indian mutual fund investors as it promotes disciplined investing, irrespective of market volatility or timing. ( Image Source :Getty )

A Systematic Investment Plan (SIP) involves investing in mutual funds by selecting a mutual fund scheme and regularly investing a fixed amount at predetermined intervals. This investment strategy entails investing small amounts consistently over time instead of investing a large sum in a single transaction, aiming to generate higher returns. Starting an SIP at an early stage can assist in achieving good returns over time while leveraging the advantages of rupee cost averaging to navigate market fluctuations effectively. 

SIP has become increasingly popular among Indian mutual fund investors as it promotes disciplined investing, irrespective of market volatility or timing. Undoubtedly, the most recommended approach for long-term investment initiation is through the SIP offered by mutual funds to generate more returns without much risk.

Here Are Five Fundamental Factors To Consider Before Starting An Investment In SIP:

Determine Your Financial Goals

Are you aiming to save for retirement, purchase a home, or fund your child's education? Because the initial stage in choosing an SIP involves determining your financial objectives. Assessing the timeframe and required funds for these goals can guide your decision regarding the appropriate mutual fund category for investment.

Past Performance Of The Funds

When selecting the optimal SIP for investment, it is essential to analyse the historical return performance of these funds. It is advisable to review the trends over the past 5 to 10 years of the particular SIP and compare their returns to ascertain their ability to endure market volatility.

The AUM Factor

Assets Under Management (AUM) denotes a measurement indicating the scale of a mutual fund's portfolio, representing the aggregate value of all assets managed by a financial institution or investment manager on behalf of its clients. Comprehending AUM is essential for investors to measure the fund's size and performance. A larger AUM signifies greater trading volume and success for the fund. 

Choose A Fund House

Selecting a fund house holds the same level of significance as selecting a specific fund. It is essential to acquaint oneself with the range of schemes offered by the fund house before committing to an investment. The choices made by the fund house can significantly impact an investor's returns, as a good decision can lead to substantial gains, whereas a poor decision in selecting the fund house could result in significant financial setbacks.

Understanding Of Expense Ratio

Mutual funds with a high expense ratio have the potential to negatively impact your fund's performance over time. The expense ratio comprises the management fee and administrative costs, commonly referred to as the fund's annual fee. Opting for funds with a lower expense ratio is preferable, as even a slight percentage variance can make a big difference in the funds.