Do you want to build wealth in the long term but, do not know how to choose the best mutual funds for SIP? Here is the solution, read this full blog.
If you choose the right mutual funds it can be a life-changer for you. With the increasing financial awareness the number of mutual funds has increased in the market but simultaneously this has also led to a lot of confusion. Investors don't know which mutual fund to pick to fulfill our long-term goals with our present capabilities.
Before you invest in any funds find answers to these questions
Here in this blog, we will learn how to choose the best mutual funds for SIP. Generally, it involves two crucial steps selecting the fund category and then selecting the scheme within it.
To align your investments with your financial goals you must choose the right fund category. With the wide range of options available, it's important to assess your needs and preferences to make an informed decision.
Consider the following factors when selecting a mutual fund category.
You will have to focus on defining your investment goals more clearly to yourself. And this forms the bedrock of your financial success and decision-making. So be clear of all, "Do you want to generate wealth over long periods, or do you want to earn regular income? Or perhaps both?
If you are a Growth-oriented investor equity funds are a good option while debt funds may appeal to those seeking seeking regular income. Also, hybrid mutual funds can be helpful as they are a mix of both equity and debt.
How long you wish to invest plays an important role in selecting a fund. In case you plan to invest for 5 years or more then you can think of equity funds since they promise high returns in the long term. But, if you need to invest for just 1-3 years, then the best option for you would be debt funds.
It is different for everyone. Therefore, it's crucial to determine how much a person can withstand market fluctuations. Debt funds are less risky while small-cap equity funds are highly volatile. Thus, choose the category that matches your goals and risk appetite.
Fees charged by the mutual funds for managing your funds are called expense ratios. These costs can reduce your return over time, so always remember to compare the expense ratio of various funds of the same category. Choose the fund with the best performance and low expense ratio.
It is important to analyze the historical performance of a fund. Past performance does not guarantee future performance. You should look at the past performance of different mutual fund categories over past periods.
The fund that you are planning to choose must be consistent, perform better than its peers, and must have the ability to outperform benchmarks and peers. You will understand how well the fund has dealt with market volatility.
In the final analysis, your money will be working under the fund manager's and his knowledge of market volatility. But if the fund manager is not so good at his skills your fund is not in good hands. So you must check for how long he is in the field also previous performance and investment style to bring it in understanding.
Equity funds are best suited for long-term growth investing i.e. more than 5 years. They are volatile hence if you have a good risk appetite and want high returns, you can choose equity funds.
Refer to the table below to understand the types of equity funds.
These are best suited for short-term investments for 1-3 years. You can choose debt funds if you want less risk and want returns better than FD.
These are the combination of equity and debt funds and therefore are less risky. Best for medium-term investing for 3-5 years.
These funds are best for beginners and long-term investors. To learn about ETF in detail read the article.
To choose the best mutual fund for sip follow the given steps.
Refer to the table below to understand it better
|
Investment Goal |
Fund Type |
Recommended Categories |
|
Wealth Creation (10+ years) |
Equity Funds |
Large-Cap, Mid-Cap, Index Funds |
|
Short-Term (1-3 years) |
Debt Funds |
Liquid Funds, Short-Term Debt Funds |
|
Balanced Growth & Stability |
Hybrid Funds |
Aggressive Hybrid, Conservative Hybrid |
|
Tax Savings |
ELSS (Tax-Saving Funds) |
Equity-Linked Saving Schemes (ELSS) |
Once you have decided on your Investment goal check the risk level
|
Fund Type |
Risk Level |
Best for |
||
|
Medium |
Safe equity growth |
||
|
High |
High returns, high risk |
||
|
Medium |
Passive, long-term investing |
||
|
Low |
Stability, low risk |
||
|
Medium |
Balanced returns & risk |
||
|
Medium |
Long-term tax savings |
Choose the fund with the best performance we have already discussed in this blog how to compare the funds performance.
Choose the fund according to the duration you want to do SIP for.
By following the steps stated you will not have questions like, “How to choose the best mutual funds for SIP?” to have an in-depth understanding of the workings of mutual funds and ETFs watch our live session of “No Loss Trading Channel” for free on YouTube.
Investing in mutual funds is one of the best methods to grow your funds passively and earn good return in the long run.
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