Mutual
funds are one of the India's most preferable investment vehicles. According to AMFI, the total Assets Under
Management (AUM) of the mutual fund industry in India surged to INR 41,62 trillion as on April 30,2023, which
was around INR 8.26 trillion, as on 30th April 2013. This indicates the industry’s growth, which
is more than 5 times, over the past ten years.
Several factors have helped
grow mutual funds in India, but customisation as per investors’ risk appetite
and goals ismakes it more preferable. Mutual funds allow you to invest in different schemes, each with a
different objective and structure.
However,
picking the right scheme is challenging, especially if you're new to mutual funds. This article attempts to help
you to teach you how to select mutual fund schemes and decide on the right SIP amount.
Which is the most popular method of investing in a
mutual fund?
Before
choosing the right mutual fund schemes, it is vital to understand SIP. SIP is a convenient method of
investing in a mutual fund schemes. SIP investments systematise your investment journey by regularising your
investments.
Through a
Systematic Investment Plan, you can invest a fixed amount in a mutual fund scheme at regular intervals. If you
remain consistent and disciplined, SIPs can help you earn good returns in the -long run.
How to choose the right SIP
amount?
Choosing
the right SIP amount can help you invest peacefully and maintain your
lifestyle. Here are certain factors you must consider to be able to select the right SIP
amount:
• Pin
down a financial goal
• Note
the financial goal's current cost
• Consider
the average inflation rate
• Calculate
the financial goal's amount in the future by accounting
for inflation
• Note
down your expectations from the mutual fund investment
• Decide
on a SIP amount after considering your daily expenses
You need
not make any calculations yourself to calculate the right SIP amount. You could consider an online SIP
calculator. It gives you a clear idea of your future financial goal and how you wish to achieve it through your
mutual fund investment.
How to select mutual funds for
SIP?
Consider the six
points mentioned below to select the suitable mutual fund schemes for SIP:
1. Financial goal
The first step to selecting the best mutual fund
schemes is to pin down your financial goal. When you have a goal in mind, you can shortlist schemes that
have the potential to help you reach the goal within your desired timeframe.
2. Consider the costs
Mutual fund investments come with certain costs,
represented by the "expense ratio." An Asset Management Company (AMC) charges an expense ratio from
investors in return for managing their funds. A lower expense ratio implies fewer charges, although it
doesn't tell you anything about the quality of the schemes.
3. Study the mutual fund's
portfolio
You must also
study the performance of the mutual fund scheme over time. While the historic performance might not wholly
indicate its future trajectory, it could give you an idea of how the scheme might perform. Also, when you
analyse the scheme's portfolio, you understand whether it suits your risk
appetite.
4. Assess the mutual fund's
management
When you
invest in a mutual fund scheme, you give your capital to a mutual fund manager, who invests the capital in
various assets.. After doing so, your conviction in the scheme might increase or decrease, ultimately
helping you make the right choice.
5. Check the mutual fund's
AUM
A mutual fund house
with more considerable Assets Under Management (AUM), number of Schemes, customer experience etc may be more
trusted than those with less AUM. Before shortlisting mutual fund schemes for SIP, research the mutual fund
company's AUM. If you're unfamiliar with reading AUM, you could consult a professional financial
advisor.
Mutual
funds are popular because they offer flexibility and convenience. You can invest in the scheme of your choice
and withdraw your investment whenever you want to (except for close-ended mutual fund schemes) subject to
certain exit laod. It is an excellent engine to create long-term wealth, but ensure you research thoroughly
before investing in any mutual fund scheme.
Mutual Fund
investments are subject to market risks, read all scheme related documents carefully.
