If you can go back in time and invest in some SIP investment plans like HDFC Top 200, then had you invested Rs. 1000 every month you would have a return of around 30% annualised now. This is an average over the past ten years.
There are now close to 60 SIP investment plans which if analyzed have offered exceptional returns. You would have got some tremendous returns on these SIP investment plans had you invested in them ten years back.
In hindsight, it all looks good and choosing a SIP investment plans feels simple. However, the toughest part is to be able to decide from the many SIP investment plans that are available in the market today.
Timing The Market
Be it mutual funds, commodities or stocks you need to select the right product and also time your investment to be able to gain maximum returns from the SIP investment plans. There is also a danger of choosing a product only based on how it has performed in the past which does not guarantee its future performance. There could be the risk of downside, inconsistency in performance and other unexpected movement in the market.
Most SIP investment plans are brought by only analysing a few months return. A good return in the last few months and people will jump to buy the mutual fund. However, the smart investor would never do that. He would look to, but the SIP investment plans that may not have offered the best returns but have provided consistent returns over time.
Wealth creation cannot happen in the blink of an eye, and it wants patience and perseverance. Those mutual fund schemes that provide consistent returns should be chosen over the ones that have provided short-term high gains. It can no doubt be difficult to find a fund among the hundreds that are available, and if you end up buying the wrong SIP investment plans, you could risk losing all your money.
Look through any mutual fund comparison website, and you will find a list of mutual funds and their performance in the last few years, the website would also mention the asset class and the diversification the mutual fund plan offers.
You have a number of reputed names like Aditya Birla, Religare, HSBC, HDFC, SBI and many others that have various SIP investment plans. So how do you go about choosing one from the top names?
Choosing The Best Mutual Fund Plan
The first and the foremost step is to be clear on what your investment objectives are. You also need to be sure of how long you would be able to keep your money invested in the SIP investment plan and also the risk that you are ready to take. It is important to understand that high risk means higher returns, but you also risk the chance of losing all your money.
The category of fund that you choose should be from the debt, equity or the hybrid category. You will then need to look within a particular category to look at the performance of the scheme in the last few years. Compare its performance with the benchmark and its peers. Also, measure the volatility, and the risk adjusts the performance of the SIP investment plans, the size of the scheme and the expense ratio.
Choosing A Fund House
After you have done that and chosen what scheme would you like to invest your money into, it is now important to choose the fund house. Select a fund house that you have faith in. Identify those fund houses that have a presence in the financial market and have a proven track record that is long-term and consistent. When the fund house is sound so will be its capability to build a strong business. The process would include the risk measures, its operational efficiency and a sustained performance.
Consistency should never be compromised upon because you will definitely not want to invest your money into a fund that has given 100% return one time and negative returns the other times. You need a good investment scheme that has been giving consistent returns over a longer time horizon. You should look for nothing less than three years and also make sure that the scheme that you select has beaten the benchmark indices.
Every investment has a risk to return ratio. If the return is not in proportion to the risk that you are willing to take, then going for such investments is absolutely not a good idea.
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