Consider these Five Factors To Choose the Best SIP planby Avinash Meheta Sip mutual fund
There are many different types of mutual funds in India. Combined with a large number of asset management companies that offer mutual funds, it can be very confusing for new investors to pick the right fund for their investment. A lot of new investors simply pick funds on recommendations from their relatives or friends. But it is important to know that what has worked for them might not always work for you.
Your financial goals, risk appetite, and investment style would surely be different than others, and it is important to select a fund that meets your specific needs. If you want to learn the art of selecting the best mutual fund for SIP investment, we’ve created a list of five factors that you should consider.
1. Investment Goal
Before you even start looking for the best SIP plan, you should know what your investment objective is. Consider the investment horizon and your risk appetite to know the right type of fund for you.
For instance, if you are looking for long-term investment and consider yourself as a risk-averse investor, you can go for large-cap equity funds. If you are comfortable with risk, you can go for mid- and small-cap funds.
2. Historical Performance
While selections shouldn’t be made solely on the basis of the performance of a fund, it is still very important to go through the fund's history before investing. Compare the performance over a term of 3-5 years. This would help you understand whether or not the fund can withstand volatile markets.
Funds that only perform when markets are high but collapse as soon as the market falls should be avoided.
3. Expense Ratio
The expense ratio of a fund is an annual fee which comprises the administrative costs and management fee of the fund. The expense ratio should be given special attention in cases when you are unable to select between funds which have similar nature and have delivered almost similar returns.
Funds with higher AUM (Assets Under Management) usually have lower expense ratio. Higher expense ratio would negatively affect the performance of the fund and should be avoided unless you are very sure about the positive performance of a fund.
4. Fund House
A mutual fund is only as good as the fund house. It is the decision of the AMC that shape the growth and return generating capacity of the fund. So, before selecting the fund, make sure that you do check the reputation and experience of the AMC.
Try to check the different types of funds they offer, their performance, fund managers, etc. to select a fund house that is well-equipped to help you achieve your investment objectives.
5. Exit Load
While there was an entry load in the past, SEBI has stopped the AMCs to levy this entry fee. However, you’ll be required to pay an exit load if you exit a fund before the minimum exit load period. For instance, if your fund's value has increased to Rs. 100 and there is an exit load of 2%; then you’ll get Rs. 98 if you exit the fund before the minimum investment tenure.
This fee can vary between different types of schemes, amount and tenure and is also regulated by SEBI.
Just get these points right, and you’ll successfully learn the art of picking the right SIP plans. Try to learn more about the factors mentioned above and rely on your own research. Do not shy away from consulting a professional if things still appear confusing.
Created on Feb 22nd 2018 05:36. Viewed 189 times.