Best SIP Mutual Funds in India
There are tons of options available in the market for Best SIP Mutual funds, hence it is crucial to pick one and invest. Also in the era of the internet where a bunch of information is available, the investor’s role in deciding the best possible plan for them and going forward with that has become challenging. Since, we are providing one such article of the in and out of SIP, with the intent to guide the readers.
What is SIP?
A Systematic Investment Plan (SIP) is a way to invest in mutual funds by spending a small, fixed amount of money regularly every month. Instead of investing a large amount at once, you invest in small portions, which makes it affordable and helps reduce risk. Over time, this method averages out the cost of your investments, so you buy more when prices are low and less when prices are high. It’s an easy way to build savings and grow wealth gradually.
It also offers consistent saving and can contribute to long-term wealth creation, as compounding helps returns increase over time.
How SIP works?
A Systematic Investment Plan (SIP) is like setting up a savings routine for investing in mutual funds. Instead of putting in a big amount all at once, you invest smaller amounts regularly—often monthly. This helps you buy units of the fund at different prices over time. When the market is low, your money buys more units, and when it’s high, you buy fewer. This averages out the cost over time, which can reduce the impact of market ups and downs. Plus, your returns get reinvested, helping your investment grow through the power of compounding. It’s a way to build wealth steadily.
Step 1: Define Your Financial Goal
Decide what you’re saving for (like retirement, a new home, or children’s education). This helps you pick the right type of mutual fund based on your time horizon and risk tolerance.
Step 2: Choose the Right Mutual Fund
Research funds that align with your goals. For long-term growth, equity funds might work well; for stability, consider debt or balanced funds. Look for funds with a strong performance history.
Step 3: Decide on the SIP Amount
Calculate an affordable amount you can invest regularly. Starting small is fine; you can always increase it over time.
Step 4: Set Up Your SIP
Register for SIP through your bank or an investment platform. Choose your frequency (monthly or quarterly), and your amount will be deducted automatically.
Step 5: Track and Adjust
Periodically review your investments. Adjust the amount or fund type if your goals or financial situation change.
Why Invest Through SIP?
Investing through Systematic Investment Plans (SIPs) has several benefits:
Disciplined Investing: SIPs encourage disciplined investing by allowing investors to regularly invest a fixed amount at predetermined intervals.
Rupee Cost Averaging: SIPs enable you to invest in a way that minimizes the impact of market volatility. By investing a fixed amount regularly, you end up buying more units when prices are low and fewer units when prices are high, thus averaging out the cost of your investments over time.
Power of Compounding: SIPs harness the power of compounding by reinvesting the returns generated from your investments, leading to potentially higher returns over the long term.
Affordability and Convenience: SIPs allow you to start investing with a small amount, making it an affordable option for those looking to build wealth over time. Additionally, SIPs offer the convenience of automated investments, requiring minimal effort on the investor’s part.
Goal-oriented Investing: SIPs are ideal for achieving long-term financial goals such as retirement planning, education funds, or buying a home. By setting up SIPs linked to specific goals, investors can stay focused on their objectives and track their progress over time.
Overall, investing through SIPs can help individuals inculcate a saving habit, benefit from market fluctuations, and work towards achieving their financial goals systematically and efficiently.
Tax Implications on SIP
Investing through SIP offers various advantages, however few tax implications could also be kept in mind before investing. here are a few :
1. Equity Mutual Funds
Short-Term Capital Gains (STCG): If you redeem equity fund units within 12 months of investment, a 15% tax is levied on the gains.
Long-Term Capital Gains (LTCG): For units held longer than 12 months, LTCG tax applies at 10% on gains above ₹1 lakh in a financial year.
2. Debt Mutual Funds
Short-Term Capital Gains (STCG): Gains from debt funds held for less than 3 years are added to your income and taxed as per your income tax slab.
Long-Term Capital Gains (LTCG): Gains on debt funds held for over 3 years are taxed at 20% with indexation benefits (adjusted for inflation), which lowers the effective tax.
3. Hybrid or Balanced Funds
Tax treatment varies based on whether the fund is equity-oriented (more than 65% equity) or debt-oriented. Equity-oriented funds follow the tax rules of equity funds, while debt-oriented funds follow debt fund taxation.
4. Tax Saving (ELSS) Funds
Equity-Linked Savings Scheme (ELSS): These are tax-saving funds with a mandatory 3-year lock-in period. Investments qualify for tax deduction under Section 80C (up to ₹1.5 lakh per year). LTCG applies as with other equity funds.
Best SIP Mutual Funds to Invest
Quant Large & Mid Cap Fund: This fund has shown strong returns, largely due to its diversified investments in sectors like consumption, pharma, and infrastructure. Its recent growth rate has outperformed the benchmark, making it a good choice for investors seeking both large and mid-cap exposure.
HDFC Balanced Advantage Fund: Known for dynamic asset allocation, this fund invests across large-cap, mid-cap, small-cap, and debt instruments. This mix provides a balanced risk-return profile, appealing to those who prefer a steady yet growth-oriented SIP.
Nippon India Large Cap Fund: With a focus on leading businesses and high-performing sectors like banking, IT, and FMCG, this fund has consistently surpassed benchmarks. It’s ideal for long-term SIP investors looking for growth from established, high-revenue companies.
ICICI Prudential Equity & Debt Fund: A hybrid fund with a mix of equities and debt, providing lower volatility and solid returns. This fund invests in financial, energy, and healthcare sectors, making it suitable for those looking for stability with growth.
Mirae Asset Emerging Bluechip Fund: This fund has performed well with a focus on emerging large-cap and mid-cap companies. It’s attractive for investors aiming to capitalize on India’s growing sectors like financial services, technology, and consumer goods.
Investing in SIPs could be the most rewarding part of your investment journey, as it gives you flexibility and minimizes the effort to increase the profitability part. Also, saves the time you’d otherwise need to put into managing your investment. So, if you are younger, now is the best time to jump into SIPs for a better result afterward.