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Everyone talks about the importance of converting your savings into investment. In other words, making your money work for you. But, it becomes difficult to select the best among all investment options. Here we will talk about one of the easiest and simplest & preferred modes of investment that is the Systematic Investment Plan (SIP).

What is systematic investment plan (SIP)?

SIP is a mechanism and a strategy that encourages you to invest small amounts as low as 100 rupees in a disciplined manner regularly. It works on the mantra of compounding with regular, disciplined savings in a carefully chosen basket of investments that suits your risk profile. It can be done in most asset classes. For Example, you can do your SIP in instruments like a recurring deposit in a bank, SIP in Liquid Funds, Ultrashort funds, or debt funds for short-term requirements and equities. In short, SIP can create wealth both in the short term as well long term.

Selecting a systematic investment plan

The first and foremost step towards selecting a SIP is to understand what kind of risk you can take with this investment? If you have a low appetite for risk, then it is ideal to invest in a debt mutual fund through a SIP. If you are an aggressive investor and want to invest for the long term then your money has to be invested in equities. Though equities are volatile it offers a promising rate of return in the long run.

Three broad categories of mutual fund schemes are equity, debt, and hybrid funds (which invest in both equity and debt). Equity oriented mutual fund scheme investments can be made across sectors like large-cap, mid-cap, and small-cap. Large-cap, midcap, and smallcap are the segments in which all companies listed in the stock market. Large-cap are the top 100 companies next 150 companies are midcaps according to market cap and the rest of the companies are small caps.

“You can start with large-cap or multi-cap funds or flexicap funds.  Once you have selected a large-cap you get two options growth & dividend. The growth option gives returns in the form of rising values of mutual fund units. Whereas, under the dividend, option returns are paid via periodic dividends. So if you are someone who is not looking for immediate growth then can select the growth option,” says Hemant Rustagi of Wiseinvest Advisors.

Risk-o-meter is also one important aspect which you should check before selecting your fund as this will help you understand the level of risk.

Selecting the fund and fund house

Now, comes in which fund to invest in? For this, you have to check the mutual fund company, Its size, asset under management (AUM), Brand history, Trustee/ownership, etc. Then, select the fund from the chosen category which is consistently performing well and much better than the other funds in peer-group for more than 3yrs, 5yrs, and 10yrs depending on your time horizon category.

In short, you have to select the fund which is consistently performing above average. If you try to pick among the top mutual fund then that would be a wrong choice as the top list keeps changing every quarter.

Now that you know how to select your fund and how to begin your SIP, in the next article, we will discuss how to monitor the progress of the Fund chosen by you and increase your investment in funds of another segment.