How to Choose the Best SIP Plans

SIPs or Systematic Investment Plans allow you to save a little regularly, so that you have access to a larger capital resource later on in the times of need. A SIP promotes financial security where you get to put in regular instalments of money at a secure place. You can access together or in parts after your plan matures.

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SIP Benefits
Start SIP with as low as ₹1000
Start SIP with as low as ₹1000
No hidden charges
No hidden charges
Save upto ₹46,800 in Tax
Save upto ₹46,800 in Taxunder section 80 C
Zero LTCG Tax
Zero LTCG Tax^ (Unlike 10% in Mutual Funds)
Disciplined & worry-free investing
Disciplined & worry-free investing

Such plans are especially essential for the salaried individuals, where they can accumulate a portion of their salaries into these investment plans which can be saved for later use. Instead of spending the whole of your salary you get to save a part of it, as well as gain considerable interest on it.

Studies show that only a meagre 2% of the Indian population invests in mutual funds^^ and equities. Thus, comes the need to make people understand the working mechanism of invest in SIPs, which allow the perfect space for safer investment and entry into the investment market.

What is a SIP?

You can choose to invest in SIPs on monthly, weekly or yearly basis. ,. The dawn of online banking and online payments has negated the problem of regular payments for SIP investments to a large extent.. With the help of online banking, your SIP payments get executed very smoothly and automatically.

According to experts, investing in monthly SIPs is always a better idea as it is easier to handle. In the monthly mode, a part of your salary automatically gets deducted from your bank account and invested into your selected mutual fund as per the applicable and available NAV.

Illustration for NAV (net Asset Value):

Say you plan to invest Rs. 1000 on a monthly basis for a year on the 5th of each month. The applicable NAV depends upon whether it’s a working or non-working day for the stock market on 5th of the respective months.

If the 5th of the month is a working day, the applicable NAV for your SIP plan would be the selected NAV for the mutual fund. In case, the 5th of the month is a non-working day for the stock market, i.e., if it is a Saturday or a Sunday or a bank holiday, the NAV that is applicable would be that of the NAV selected for the mutual fund at the closing of the next working day.

Benefit Formula of SIP

  • Rupee-cost Averaging- Since the nature of mutual funds in India is very dicey; it makes sense to invest in SIPs as it has the benefit of rupee-cost averaging. This allows the money that you have invested to earn more units when the prices are low and fewer units when the prices are higher.

  • Compounding Powers: Your investment in the mutual funds not only gives you returns in the form of savings but you also get to earn in the form of compound interest on your principal amount. Thus, if your plan involves investing for a period of say 5-6 years, you will benefit by getting a higher amount as compared to your investment for a shorter duration like 1-2 years. This power of compounding is especially beneficial for those who start investing in mutual funds and SIPs plans very early in life.

How to Choose the Perfect SIP Plan?

You could consult with your bank’s relationship manager and go through the list of all the mutual funds and discuss the returns that they would bring. Also, refer to the manager’s suggestions on which mutual fund/s would be most profitable to you.

Even a simple browsing through the internet would help you locate which SIP or mutual fund you should choose, provided you have the patience to go through  the performance records of all the SIPs and evaluate how much returns they have produced in previous years.

These are the following things you need to keep in mind while selecting a particular SIP:

  • The mutual fund that you have chosen has been in market for at least from the last five

  • The mutual fund you are planning to invest into should be operated by your bank. To cross check this information, you can verify the details of the plan from your relationship manager at the bank.

  • The “fund house” chosen by you is reputable and recognizable. In most cases, if your fund house is reputable, it’s a green light about its performance and the returns given by it.

  • The total size of the asset or the corpus should be huge. This is especially one of the basics if you are new to the world of mutual funds and finances. As a base, you should look for funds with Rs. 500 crore. Again, the problem would be that you would not find many fund houses keeping that much capital as their corpus. But, the ones that have this figure, will still be the most reliable ones.

  • Try going through the plans and avoid those which involve risks such as volatility and low liquidity.

  • The best plans are the ELSS tax saver plans that further allow you to avoid the hefty tax payments and therefore accumulate a larger corpus of capital.

  • Look for the funds that have good ranking accredited by CRISIL rated funds. The funds with ranking 1-3 are the ideal ones.

People Also Read: sip calculator

Best SIP plans available during 2020

The following funds have been highly searched and invested in during last 5-6 years and may prove useful in your search for the perfect mutual fund:

  • ICICI Prudential Blue Chip Fund: It has delivered returns of45% returns in a year, 17.03% in three years and around 19.77% in five years. This Fund provides a top-rated SIP plan for those who intend to invest regularly and steadily in their mutual funds.The Fund focuses 95% of its capital on the investment for the leading 20 companies among the top 200 companies in the country. It is a plan that outshone most of its peers in the field of investment planning. Owing to the factors like its regularity, stability and lower levels of volatility, ICICI Prudential Blue Chip Fund is able to deliver good returns as compared to its peers.

  • HDFC Small Cap Fund: This equity fund has proven to be one of the most helpful and useful equity funds ever with returns like 21.52% in 3 years and 24.31% in five years. The best part is that along with the increase in returns over the period, the initial returns received are also high with this fund.

  • DSP Blackrock tax saver: It is not uncommon for people found to be stressed during the fourth quarter of a financial year due to tax. DSP Blackrock Tax Saver fund is a typical example of how an ELSS fund can be used to save taxes. This SIP plan gives back 6.68% in the first year, 16.58% of the investment by the third year and finally up to 23.12% by the fifth year.

  • ICICI Prudential value discovery fund: This fund focuses on value for stock exchanges. It is one of the best SIP plans available on the market. Since its launch in the year 2004, it has outshone most of its peer by bringing in good returns and has been successful in capturing the attention of prospective investors.For the first year of investment, this fund gave back 15.60% returns, for a period of3 years 13.52% returns may be expected. Although, there is a fall in the percentage of returns has been noticed, this particular fund was still able to deliver returns allows you to receive up to 26.17% returns on your investment.

  • Axis Long-term Equity Fund: This is one of the top funds that have been taken up by many investors who prefer investing on a regular basis and also those who are looking for a way to reduce taxes. In the first year of investment, the fund gives back returns at 19.37%, in 3-years period, the returns rise to a little more than 16%, and finally for a 5-year perid, this fund gives back a return of up to 27.54%.

Why Should You Invest in a SIP Plan?

Investing in mutual funds via SIP plans are the best ways to ensure a huge corpus of assets after a long period. The other major benefits of investing in SIPs are as follows:

  • Regularity in Saving: SIPs may require monthly, weekly or annual investments. For salaried people, this is one of the best ways saving up since a part of your salary gets timely deposited as an And, you don’t have to worry about making huge investments in one go.

  • Hassle Free: Making investments through SIP is also very convenient. You may be able to make your investments smoothly by authorizing an ECS mandate from your bank. It will help you make regular payments for your SIP plan.

  • Flexibility: SIPs are very flexible as they allow the investors to increase or even decrease the amount of money that they are investing in a plan. Also, the investors may choose to exit their respective plans at any point of time. Such freedom and flexibility in the customization as well as termination of SIP funds encourage the investors to invest in mutual funds.

  • Low-risk factor: Since the investor will be putting in only small amounts of money into the plan, there is a comparatively lower level of risk in losing their investments and higher probabilities of making money or more and more profits from these investments.

People Also Read: Systematic Withdrawal Plan (SWP)

Mistakes You Need to Avoid

Even though SIPs are a convenient way of investing in mutual funds, there are still some risks to mutual funds that are likely to be present at all times. It is best to avoid the following mistakes while investing in Mutual Funds:

  • Choosing the Wrong Fund: If you are choosing a fund, make sure you choose one that suits your needs and your ability to pay up for these funds. It is best to consult your bank’s relationship manager before selecting a particular plan and also keep in mind that it works better to choose a fund that your bank is already conjunct with.

  • Investing high amounts: Since you are liable to pay the investment amount every month without fail, make sure that you do not pick a higher amount. That will result in taking away a significant part of your salary and you will not be able to access this money before a long while.

  • Make short time investments: If you are going to invest, invest over a long period. Unfortunately, this is a thumb rule of investment that most beginners miss out on. Investments that are made on a long-term basis are most likely to bring in higher interests than those that are made on a very short-term

  • Setting unrealistic goals: Do not set unrealistic goals and expect returns of about 50% to 100%. Expecting a 10-20% increase in returns is a safer and more realistic way of looking at returns from mutual funds via SIP plans. Most beginners in the field of investment feel the same rush of investing but setting such goals may only discourage you in the future.

How much should you invest initially?

Indian SIP plans allow the investor to invest a minimum of Rs. 500. This may be a small amount to most investors but is a good place to start from. A lower amount involves lower risk and volatility in the market will not affect your returns. Investing up to Rs. 1000 or 2000 is advisable for those who have money to spare, but beyond that amount one should refrain from investing in her/his beginning phase.

SIPs are a disciplines way of investing in mutual funds and can easily lead to increasing returns if one is vigilant and enthusiastic. They are also a hassle-free way of making some money that many investors like to use, who prefer investing on a regular basis.

+For Mutual Fund midcap category Returns & for Insurance midcap fund category Returns-
*Past 10 Year annualised returns as on 01-12-2023
*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
~Source - Google Review Rating available on:-
^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.

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