Five points to consider before investing in SIPs

SIP stands for Systematic Investment Plan, which is a way to invest in mutual funds. In SIP, you invest a fixed amount every month on a fixed date in a mutual fund scheme. Instead of a fixed amount, you receive units of the mutual fund scheme. On the other hand, Lumpsum refers to investing a single amount in a mutual fund. Before starting a SIP in a mutual fund scheme, there are five points you should consider:

Before investing in a mutual fund SIP, you should assess your risk-taking ability. Mutual fund schemes can invest in different types of assets, categorized into low, medium, and high-risk. Depending on your risk tolerance, you can choose debt funds for low risk, balanced funds or large-cap equity funds for moderate risk and small-cap or thematic funds for higher returns with higher risk.

Before starting SIP, you should define your financial goals, such as education expenses, wedding, home purchase, or retirement. The choice of mutual fund scheme and SIP amount depends on how much time you have to achieve these goals.

It’s crucial to select the right mutual fund scheme for your investment. Often, people invest based on recommendations from friends or acquaintances, which may not always be suitable. It’s important to understand the scheme’s performance history, expense ratio and how it compares with other funds in the same category.

Before investing in any mutual fund scheme through SIP, evaluate its performance over the last 1, 3, and 5 years compared to benchmark indices and other funds in the category. Also, check the expense ratio of the scheme, as lower expenses can lead to higher returns in the long term.

Understand that markets will fluctuate and your investment may also go up and down. Don’t panic during market fluctuations and continue your SIP investments as planned. Exiting mutual fund schemes due to market volatility can lead to significant losses.

When starting a Mutual Fund SIP, it’s essential to consider these points or factors. You can also seek assistance from a SEBI-registered investment advisor (SEBI-RIA) to select the right mutual fund scheme that suits your financial goals and risk profile.