When someone is exploring different options to start investing in the equity markets it is not uncommon to receive advice that endorses SIP investments with the greatest confidence.
SIP investments are a hassle-free way of participating in the capital markets.
For that reason, the above advice might sound appealing to you.
And, you now begin your journey of researching and understanding what are the best SIP plans in the market today. As you learn more and compare different options, it is easy to get overwhelmed. There is a lot of information on this subject and also a lot of conflicting advice.
Since this will be one of the most important financial decisions you will ever make, we want to help you avoid any kind of decision paralysis that accompanies the entire ordeal of choosing the best SIP plans in equity mutual funds to invest in.
In order to help you identify some of the best SIP investment plans in equity mutual funds and to nudge you in the right direction, we decided to cover this topic in this article.
Whether you are a salaried individual or a self-employed entrepreneur, your investment decisions have to be deliberate and have a certain degree of foresight.
Equity Mutual fund investments are one of the easiest and wisest ways to begin your investment journey. And one of the ways to invest in mutual funds is through SIP.
Equity Mutual funds and SIP investments go hand in hand.
SIP is a method of investing in mutual funds irrespective of the type as mutual funds can vary depending on the underlying asset classes they invest in. Asset classes can be equity, debt, commodities, etc.
We will talk about what mutual funds are, what a SIP is and also discuss some of the best SIP equity schemes available in the market today.
Our goal is to provide you with enough information so that you can make better investment decisions.
There is a lot to go over, so let’s begin.
What is Mutual Fund?
You probably already know what a mutual fund is. But, just in case, here is a quick refresher.
In the case of an equity mutual fund, it is a financial product that pools money from multiple investors. It uses the corpus hence pooled to invest in the equities market.
Today, there are a variety of mutual funds that are tailored to the financial requirements of different investors.
A mutual fund is managed by a fund manager who is extremely knowledgeable about how the financial markets work. A fund manager makes strategic and calculated investments in order to generate reasonable returns for the investors.
We also wrote an article on how mutual funds works, have a look.
What is SIP?
SIP is an investment method through which an individual investor can invest a fixed amount of money in mutual funds at regular intervals.
The word SIP is used so frequently that you might wonder what the full form of SIP is.
SIP simply stands for a Systematic Investment Plan. SIP is a feature that is unique to mutual funds. A predetermined amount is deducted from your savings or salary account and directly invested in a mutual fund scheme of your choice.
The frequency of your SIP investment can be set to be a weekly, monthly, quarterly or annual payment. In most cases, investors choose to invest in SIP on a monthly basis.
SIP is the most preferred choice of investment among investors as it allows an individual to invest a small amount of money in some of the best SIP schemes and reap good returns over a period of time. SIP has made investing in equity markets accessible to everyone irrespective of one’s income level.
For instance, SIP gives you the opportunity to make ten investments of Rs. 1000 instead of a one-time investment of Rs. 10,000.
Since you can make such bite-sized payments instead of a lump sum, SIP enables you to continue investing in a mutual fund scheme without interfering with your other financial obligations.
If you ever wondered what is SIP in a mutual fund, you now have your answer.
How does SIP work?
Now that you have a good idea about what SIP is, let’s learn about how SIP works.
In order to understand how SIP works, we need to look at two key attributes of SIP investments.
1. The Power of Compounding
One of the biggest advantages of investing in SIP is the power of compounding. To better understand the power of compounding in the context of SIP, let’s look at an example. Let’s assume individual A started investing Rs. 10,000 per year at the age of 30 and individual B started investing the same amount each year at the age of 35. In both these cases let’s assume a rate of return of 8% compounded annually.
When both these individuals get to the age of 60 years, individual A would have a corpus of Rs. 12.23 lakh while individual B would have a corpus of Rs. 7.89 lakh. As you can see the effect of compounding is significant in terms of total money available.
Simply put, the earlier you start and the longer you stay invested, the longer the compounding period. The longer the compounding period, the higher the returns. As a result of all of this, individual A gets to enjoy higher returns.
2. Rupee Cost Averaging (RCA)
Equity markets are volatile in nature. SIP investments particularly come in handy during market fluctuations. When the markets are performing well and are in a bull phase, your mutual fund units will be valued at a higher price and when the markets are going through a bear phase, you accumulate an additional number of units at a lower price.
Essentially, this will reduce your cost of holdings (cost per unit of a mutual fund) over a period of time. When you invest the same amount in good SIP plans at regular intervals over time, you buy more units when the price is lower.
SIP investments allow you to traverse through the lows and the highs of the market. SIP investments smoothen market volatility and act as a tool for risk reduction.
Know more about SIP investments and how to invest in SIP.
We hope this helped you understand the fundamentals of how SIP works.
If you want to plan your own SIP investment, you can use our SIP calculator to gauge what your SIP investment should be.
Now, let’s look at what are some of the best SIP plans to invest in currently.
Best Performing SIP in India
In order to make sure that you get the best possible returns on your SIP investments it is important to choose the right kind of SIP funds. Here is a list of some of the top-performing SIP schemes.
Best SIP Plans for Long-term
The long-term wealth generation mutual funds recommended by Scripbox are some of the best SIP plans for long term investors.
Let’s take a detailed look at each of them.
The Mirae Asset Large Cap Fund is one of the best performing SIP to invest in. This is an equity mutual fund with the objective of generating long term capital appreciation by predominantly investing in equities in large-cap companies.
This is ideal for investors looking at long-term wealth creation by staying invested for a long period of time and willing to take on equity asset class risks. This fund also qualifies as a high return SIP plan.
As you can see in the graphs below, this fund has consistently performed slightly better than other similar funds in the market. This fund generated an average return of around 9% over a period of 1 year and an average return of over 18% over a period of 5 years.
The goal of this fund is to generate reasonably favorable returns by investing in large-cap equities. By predominantly investing in large-cap companies, this fund aims to provide long-term capital appreciation to its investors. The risk factor of the fund is moderate with a 5-year return of around 10.6%.
It is considered one of the best SIPs to invest in for the highest growth.
This fund aims to generate long-term capital gains by mostly investing in equity and equity-related securities in a few selected sectors. This fund is considered moderately risky and categorized as a high return SIP plan. It has managed to provide a 19% return over a 5-year period.
Again, this is a moderately high-risk fund that focuses on long-term capital growth. This fund has an actively managed portfolio that majorly invests in equity and equity-related securities.
All of the above-mentioned funds are some of the best SIP plans for long-term wealth creation.
Some of the best SIP schemes also fall under the short-term money category. There are predominantly debt funds and offer great options in terms of liquidity. Let’s take a look at what they are.
Finding good SIP plans that offer high returns can be challenging. We hope these suggestions will help you get started on your investment journey.
With the right amount of due diligence and enthusiasm, you will be able to able to evaluate which SIP scheme best suits your investment needs at the moment. Just remember that the best SIP plan is the one that helps achieve your unique financial goals.
As you continue to explore the world of mutual funds, feel free to browse through our blog. We have a host of resources that offer a great deal of information.