An SIP or a systematic investment plan offers an affordable and low-risk way to invest in mutual funds. From building an emergency fund to planning for retirement, travelling, or children’s education, an SIP offers a disciplined way to turn your aspirations into reality. However, the key is to choose the right SIP plan that can support your investment objectives. On that note, let’s discuss 5 useful strategies to select the right SIP fund for your financial goals.

  • Identify your goals and link them with multiple SIPs

List down your goals. Are you saving for retirement, a home, a big family vacation, or children’s education? Once you have a clear vision of your goals, consider diversifying your investments by linking them with multiple SIPs.

Suppose your goal is to save for retirement which is 30 years away. You may allocate a portion of your SIP investments towards equity mutual funds for long-term growth and another portion towards debt funds for stability and regular income.

  • Understand your risk tolerance to decide on SIP plans

SIPs are available for equity funds, debt funds, liquid funds and even gold funds. Each fund varies in terms of returns, risk, securities, and performance patterns. Assessing your risk tolerance will help determine the type of fund that aligns with your goal, time horizon, income, liabilities, and comfort level.

If you are an aggressive investor who can accept high risk for high returns, equity funds may work for you. If you prefer stability and lower risk, debt or liquid funds could be more suitable. And if you want the benefits of multiple asset classes in one fund, you can invest in hybrid mutual funds via SIP and leverage both growth and stability.

  • Evaluate fund performance

Analyse the fund’s historical performance over a period of at least 5-6 years to evaluate its performance across various market conditions. This way, you can assess how the fund has performed during bull markets, market downturns, or high volatility.

For example, a mutual fund scheme has delivered an average annual return of 14% over the past 5 years. However, upon closer evaluation, you notice that the fund has witnessed a significant dip in returns during bearish phases. Such insights help you make more informed investment decisions.

  • Portfolio concentration

Concentration is the extent to which a fund invests in a particular sector or company. High concentration in selected stocks or companies indicates higher risk and usually, investors with a high-risk appetite prefer such investments.

So, instead of investing heavily in a single sector or company-specific SIP, opt for a mutual fund SIP plan with exposure to different asset classes, securities, and industries. This active approach helps you create a balanced portfolio which is less vulnerable to the performance of any one investment.

  • Fund age and AUM

Fund age helps you understand the performance history and stability of the fund in different market scenarios. Ideally, you should invest in schemes that have been in existence for at least 3 years or more.

Also, consider the AUM (assets under management) of the scheme, which refers to the total market value of the investments held by the fund. You can check and compare the AUM of different schemes on fund house websites and get an idea of which systematic investment plan are more popular among investors and have a larger investor base.

To wrap up

With diversification, disciplined investment, and affordability as its key features, an SIP helps you invest in mutual funds for different goals. However, the journey does not end with selecting a plan. It is equally important to monitor your investments and increase your contributions over time to accelerate your portfolio growth. If you need a personalised approach, consulting a mutual fund advisor can help.

Eve Nasir

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