Follow these 5 Tips and Never go wrong when Selecting a SIP

The ability to invest a small amount on a regular basis has made SIP in mutual funds a go-to option for millions of new investors. While fund houses have made the online investment process very quick and simple, most of the investors struggle when it comes to selecting the right SIP scheme for their investment.

If you are new to mutual funds and are struggling with the same, here are a few tips that can help-

1. Understand your Objective

While you might be investing for your retirement, someone else might be investing to buy a new car. Every investor has a different investment objective. The mutual funds can be differentiated on the basis of your objectives.

For instance, while equity funds are recommended for long-term wealth creation, debt funds are known for short-term goals and stability. Understanding your objectives can make it easier for you to select the right scheme.

2. Know how Much Risk you are Comfortable With

Apart from the objective, you also need to consider your risk appetite when selecting the right mutual fund scheme. No matter what kind of fund you choose, know that every type of mutual fund carries some amount of risk.

However, the risk can significantly vary between funds. For instance, a low-cap equity fund is generally way more volatile than a large-cap equity fund or a debt fund. Knowing your risk appetite can help you select the right type of fund. 

3. Past Performance of the Fund

Once you have chosen a particular type of fund for your SIP and know your risk appetite, the next step is to check the past performance of the top funds in the selected category. For instance, if your choice of fund is equity fund, review the past performance of at least top ten equity funds.

Not just the returns of last one year, make sure that you also check the performance in the previous 3-5 years to get a clear idea of how the fund performs under different market conditions.

4. Know more about the Fund House

When you invest in a mutual fund, you permit the fund house to manage your money on your behalf. Can you trust anyone with your hard-earned money? As a result, it is essential to know as much about the fund house of your selected mutual fund scheme as possible.

Check their market reputation, industry experience, fund manager, other schemes offered by the fund house, etc. to make sure that you have selected a reputed company.

5. Use SIP Calculator

Before investing in a mutual fund, every investor wants to know the returns that they can expect from their investment. A SIP calculator can be very helpful here.

These online tools allow you to select a SIP amount and returns that you expect in a year. Once these details are inserted, the tool will instantly calculate the returns that you can expect in 1 year, 3-years, and more.

SIPs allow you to start investing in mutual funds with as little as Rs. 500, making them one of the best ways to start investing at an early age. Now that you know a few handy tips to pick the right SIP scheme, use this knowledge to begin your mutual fund investment journey successfully.