KEEP THESE 5 FACTORS IN MIND WHEN CHOOSING SIP FOR INVESTING

To generate wealth, you’ll need to take more effort by simply parking your savings in fixed deposits or savings account. To actually create wealth, one needs to invest in investment options that offer returns higher than the rate of inflation. For investors with low risk appetite, SIPs can be one of the best investment routes to generate wealth over a period of time.

Systematic Investment Plan, also known as SIP, lets you save small, insignificant amounts regularly, that provides access to a more substantial capital resource later to fulfil your financial goals. You cannot invest in SIP as it is not a financial security in itself. Instead, it is a mode to invest in mutual funds. SIP investment inculcate financial security as regular investments are made towards mutual fund investments irrespective of the market condition. The periodicity of the investments can be daily, weekly, monthly, quarterly, or annually.

However, before you decide to invest in mutual funds via SIP mode of investments, you must consider a few parameters. Read on to understand the factors to be considered before investing in mutual funds via SIP model:

1. Investment goal:
   Investors are advised to invest in mutual funds keeping their financial objective in mind. The period to meet the goal varies from a few months to a few years, depending on the type of goal. For instance, working out financesto buy a new phone or a car can be considered as a short-term goal. On the other hand,saving diligently for your child’s higher education or marriage, could be considered as a long-term goal. So, before you invest, think through your goals and invest accordingly.
2. Fund’sperformance and anticipated returns:
   The ultimate goal of any type of investment is their potential to earnreturns. Onemustcautiouslyobserve the returns offered by the fund during different stages and compare them with the other funds in the same category and underlying benchmark or index. For instance, if you are investing in equity funds, you might consider checking their long-term returns and performance.
3. Fund type:
   A lot of investors are unable to decide where they want to invest in. Being familiarwith your risk profile can help you decide on the type of fund. If you are a risk-averse investor who prefers a stable inflow of income, then you might consider investing in debt funds. On the other hand, if you have the stomach to face the volatilities associated with equity markets, then you can invest in equity mutual funds. Choose the right type after carefully analysing your financial goals, risk profile and investment horizon.
4. Fund House:
   When you invest in mutual funds, you provide a mandate to the AMC (asset management company) or fund house to manage your mutual fund investments on our behalf. The decisions made by the fund house or the AMC directly impacts the returns earned on your portfolio. Hence, lookfor AMCs that have a consistent and elongated track record.
5. Entry/ Exit Loads:
   These are the charges that an investor is liable to pay oncethey exit the scheme before a predetermined period. These trivial costs have the potential to have a substantial impact on the returns of the mutual funds in the long run. Note that different funds have different entry and exit chargesconditionalon the nature of assets held by them.