Investing in mutual funds is one of the best investment approaches among experienced and new investors. SIP for beginners facilitate a high level of flexibility while providing several options for capital allocation, such as equity, debt, and hybrid funds.
Moreover, investing through a Systematic Investment Plan (SIP) over the long term helps investors multiply their savings manifold. Additionally, these funds diversify investors’ money in a large basket of stocks and debt, across multiple industries, themes, and sectors. This diversification further helps in risk mitigation.
Taking the SIP route allows investors to make small but smart investments over a large period. The benefit here is the averaging of NAV (Net Asset Value), either upward or downward, depending on the direction of the broader market at that particular time.
Investors like you know the benefits of mutual funds investing, but searching for the right one from thousands of available funds can be a challenging task, mainly for beginners. To simplify this process, we have listed a few of the best SIPs for beginners in India for beginners in this blog.
How do mutual funds work?
Mutual funds are well-known financial instruments that pool investments from numerous investors to invest in mixed portfolios of bonds, stocks, and other crucial securities. Here is how these mutual funds operate:
- Pooling Money: Numerous investors across different cities of India contribute their money by purchasing mutual funds. This purchase further creates a collective wealth, which is then managed by fund managers.
- Investment Strategy: These fund managers implement creative strategies and use the pooled money to purchase a variety of assets. Their strategies should align with the rules and regulations of fund houses, such as equity mutual funds, which must invest more than 65% of their assets in stocks.
- Net Asset Value (NAV): The exact value of a particular mutual fund is determined by its NAV. It is computed by dividing the exact value of fund assets minus liabilities by the total number of shares.
Things to consider while selecting an SIP for beginners.
Starting an SIP early in your life helps you in tackling the market fluctuations while providing the benefit of rupee cost averaging. SIP for beginners is one of the best decisions that help in promoting discipline and regularity in your investment. However, at the same time, it also demands proper planning to make better returns on your investments.
Listed below are the five important factors that you need to consider before finalizing your SIP investment plan.
- Having a concrete investment objective is a must.
There are numerous investors who invest in SIPs just to retain their taxes, as they don’t know that mutual funds can help them achieve more than that. You, as an investor must decide on your investment goal, whether short-term or long-term. This helps in deciding your amount, tenure, risks, and all the more important funds. - Select your fund type.
To pick a perfect SIP plan that caters to your needs, you must be aware of the different types of available funds. Like if you have a huge risk appetite and want to take risks to make better returns, going with equity mutual funds will be the right choice for you.
Let’s explore the list of available fund types:
- Asset-based funds
- Debt funds
- Balanced or hybrid funds
- Tax-saver funds
- Structured-based mutual funds and more
- Go through the fund’s performance.
Another factor that must be taken into consideration prior to selecting the best SIP for beginners is to learn about the fund’s historical performance and returns. It is recommended to evaluate the trends for the last five to ten years and compare the performance with other similar funds. - Select a fund house.
Selecting a good fund house is equally important as selecting a fund. Research and learn about different schemes offered by the fund houses you want to invest in. The decision of the fund house can significantly impact the investor’s return on investment. Therefore careful decision-making is crucial. - Consider expense ratio, AUM, and ratings.
If a particular fund has a high expense ratio, then it can notably decrease your fund’s return in the long haul. The expense ratio can be understood as the management fee and administrative cost of running a mutual fund. The fund’s AUM and rating should also be taken into account before finalizing the SIP investment plan.
Why invest through SIP?
As most investors are business persons or salaried employees, they lack proper investing knowledge and do not have enough time to purchase particular stocks or bonds. Also, it is almost impossible to time the market, this is where SIP comes into play.
Choosing the best SIP for beginners helps in rupee cost averaging by purchasing units of mutual funds at different times. This further helps in tackling market volatility to some level.
Additionally, you can also take advantage of the bearish market by buying more units and whenever the market is at its peak, one should try to not invest at that time. Furthermore, if you have made investments through SIPs, you don’t need to respond to market ups and downs personally as these funds are being managed by professional money managers with years of expertise in the same field.
Benefits of investing in SIP for beginners.
Listed below are the benefits of investing in SIPs for beginners in India that beginners must be aware of before starting their investment journey. Dive into the list below for more details:
- Managed by experienced professionals
- Risk diversification by investing the pooled money across different asset classes
- SIPs make investing in mutual funds more accessible
- Quite flexible as they cater to investors with different risk profiles and investment horizons
- High liquidity allows you to redeem your wealth at any time (subject to exit load and taxes applicable)
Top 5 mutual funds SIP for beginners to invest in India
Here is the list of the top 10 mutual funds SIP for beginners so that you can start investing in the growing Indian economy. Our list is backed by thorough research and comprises funds from different asset classes and categories.
Parag Parikh Flexi Cap Fund
Here are the key factors that make Parag Parikh Flexi Cap Fund top our list:
- It has an asset under management (AUM) of 28,546 crore.
- It is a balanced fund that invests its pooled money in both equity and debt.
- It has made 70.63% of its investment in domestic equities.
- Compared to other balanced funds, it has a slightly higher expense ratio of 0.76%.
- Since its launch, it has consistently delivered an average return of 18.8%.
HDFC Mid Cap Opportunities Fund
Listed below are the key features of the HDFC Mid Cap Opportunities Fund:
- It has an AUM of 77967 crore.
- This fund primarily invests in mid-cap companies and it mainly focuses on sectors like finance, healthcare, capital goods, technology, and more.
- The expense ratio for the direct plan is 0.76%.
- Suitable for investors looking to invest for at least 3 to 4 years for high returns.
- Since its launch, it has consistently delivered an average return of 19.06%.
Motilal Oswal Midcap Fund
Here are the key features of Motilal Oswal Midcap Fund:
- It has an AUM of 26421 crore.
- This fund has a 90.8% investment in domestic equities, mainly in midcap and small cap stocks.
- The expense ratio for the direct plan is 0.65%.
- Suitable for investors looking to invest for at least 3 to 4 years for high returns.
- It has a 5-star rating from CRISIL.
- It has generated 30.84% annualized returns (CAGR) in the last 3 years.
Nippon India Small Cap Fund
Here are the key features of Nippon India Small Cap Fund:
- It has an AUM of 61973 crore.
- This fund has 94.96% investment in domestic equities, mainly in small cap stocks.
- The expense ratio for the direct plan is 0.68%.
- It has a 4-star rating from CRISIL.
- It has generated 33.12% annualized returns (CAGR) in the last 5 years.
Quant Multi Asset Fund
Here are the key features of Quant Multi Asset Fund:
- It has an AUM of 3201 crore.
- This fund has a 51.95% investment in domestic equities, mainly in large-cap stocks.
- The expense ratio for the direct plan is 0.61%.
- It has generated 19.78% annualized returns (CAGR) in the last 5 years.
Risks and challenges involved in SIP investing
Everything has some sort of risks associated with it and so do investments as well. Several factors influence the price of this investment instrument which may lead investors to losses. Listed below are a few risks that investors must be aware of before starting SIPs.
Expense Ratio
Each and every mutual fund comes with a management fee which is also known by the term expense ratio. The higher the expense ratio, the lower the returns, it’s that simple.
Market Risks
One should not expect the exact return shown on websites and apps. The returns solely depend upon the market performance. Market volatility significantly influences the value of your investments.
Lack of Control
As these funds are being managed by professionals, investors have restricted control over their assets in the portfolio.
Goals misalignment
Choosing funds that do not align with your objectives will not help you to achieve your financial goals.
Conclusion
Just regular savings will never be enough in wealth creation. It is therefore crucial to make proper investments to achieve the same. Mutual funds SIPs for beginners are one of the best investment
instruments if one understands their pros and cons.
Broader risk diversification and value for money help investors in wealth accumulation with the passage of time. Additionally, the SIP route helps even low-income class people to meet their different life goals if they plan properly.
FAQs
Q – What should I do to start my first SIP?
Ans- You can follow the below-mentioned steps to start your first SIP:
- Set clear financial goals like retirement, education, or emergency funds.
- Take care of your risk appetite.
- Select a fund that aligns with your goals and risk.
- Next, you need to select the financial planner or advisor with whom you want to work with.
- Complete your Know Your Customer (KYC) process.
- Choose an amount you can easily afford every month.
- Select the date of SIP and the duration of the investment.
- Submit your application and you are good to go.
Q – Is it possible to start SIP by myself?
Ans- Yes, you can start SIP by yourself, either through online or offline mode.
Q – What are the well-known apps for investing in SIPs?
Ans- Here are a few of the best apps that you can consider for starting SIPs:
- Groww
- MF Wealth
- Zerodha
- Upstox
Q- What amount of money is needed to start a SIP?
Ans- The minimum amount of money you need to start a SIP for beginners in India is usually 500.
Q- What are the factors to consider before choosing any particular fund for SIP?
Ans- Choosing an SIP for beginners in India demands careful consideration of these important aspects.
- Look over the fund’s performance.
- Check the mutual fund’s expense ratio.
- Also, go through the fund’s AUM and their manager’s profile.
- Look where that particular fund is making investments.
Q- What is the perfect age for starting SIP?
Ans- One can start investing whenever they turn 18. The main rule related to investing is – the earlier the better.
Q- What are the risks involved in SIP investing?
Ans- Here are the few risks associated with SIP investing that you must be aware:
- Buying shares or units in the bullish market.
- Higher expense ratio of the mutual fund.
- Liquidity risks.
- Performance depends solely on the market and not on the basis of previous returns.
Q- Is it possible to pause or stop SIP if needed?
Ans- Yes, one can easily pause or stop your Systematic Investment Plan (SIP) whenever they feel the need.
Q- What is the difference between SIP and Lump sum investment?
Ans- SIPs include regular investments at any particular date at some fixed intervals, while on the other hand, a lump sum makes a one-time investment of a large amount of money.
Q- What are the key benefits of choosing SIP over other saving methods?
Ans- Listed below are a few benefits of starting a SIP for beginners:
– Power of compounding.
– Flexible investment amount and tenure.
– Rupee cost averaging.
– Disciplined savings.
– Better returns than traditional savings.
