How to Select the Right Mutual Fund Schemes for SIP?
Thinking about starting an SIP to grow your wealth but feeling overwhelmed by the sheer number of mutual fund options? SIPs also known as Systematic Investment Plans are a useful way to invest consistently and benefit from the power of compounding.
However, choosing the right mutual fund for SIP can be daunting, and you need to factor in several elements that can influence your returns. Whether you are a newbie or a seasoned investor, choosing the right mutual fund scheme for SIP is the key to achieving your financial goals.
In this blog, we will discuss the most essential factors to make an informed decision while choosing your fund.
6 Key Things to Consider While Choosing The Right Mutual Fund Scheme
Before you invest your hard-earned money, scrutinize the best mutual funds for SIP with these criteria. The aim should be to do research before making an informed decision.
Evaluate Past Performance
Let’s face the reality – the past performance of a mutual fund doesn’t indicate its future results. However, the statistics provide valuable insights into how a fund has performed under different market conditions.
Take a look at the performance of the fund over different time frames like 1 year, 3 years, 5 years, and 10 years.
Now, compare the returns generated by the fund against its benchmark and other funds. You will get this information on your mutual fund app.
Consider the Expense Ratio
The expense ratio of a mutual fund is the annual fee that investors need to pay to cover operating expenses. This fee is expressed in the form of a percentage of the Asset Under Management of the fund.
As an investor, it’s logical to go for a fund with a lower expense ratio. A higher expense ratio can significantly erode your returns over time. For index funds and ETFs, the expense ratios are usually lower compared to funds that are managed actively.
Check the Track Record of the Fund Manager
The competitiveness of the fund manager largely defines the returns you would receive while investing in a mutual fund. A fund manager with a strong track record of success and consistent performance can add significant value to your investment.
While choosing a mutual fund, check out the qualifications and track record of the fund manager across different funds they have managed. A stable and experienced fund management team indicates a higher chance of favorable returns over the long term.
Review Portfolio Composition
It’s critical to understand where the mutual fund invests. Therefore, review the portfolio of the fund and make sure it aligns with your risk tolerance and investment goals.
Have a look at sector allocation, top holdings, and diversification across different asset classes. A well-diversified portfolio can help reduce risk, and you stand the chance to make potential gains.
Assess the Risk Metrics
Some of the key metrics to consider while investing in mutual funds are standard deviation and beta. The standard deviation measures the volatility of the fund. So, a fund with a higher standard deviation tends to be volatile.
Beta measures how sensitive the fund is to market movements. A beta score greater than 1 indicates the fund is more volatile than the market. With a proper understanding of these metrics, you can choose a fund that aligns with your risk appetite.
Conclusion
Remember, a well-planned investment portfolio empowers you to stride ahead to your financial goals. With the right approach, you can select a fund that corresponds to your financial goals.
