5 Things To Know Before Investing in Mutual Funds Via SIPs

SIPs are becoming popular with the rising equity market and the returns they have generated in the past. If you are a first-time investor, and don't want to spend a single minute thinking about when to invest, then SIP is the right investment option for you. Here's a look at basic things you should consider before putting your hard earned money at stake.

Existence

You should ensure that the mutual fund you are choosing has been in existence for at least five years. Parking your money in a new MF is likely to put it at risk since you will not be able to monitor its past performance for returns.

Companies 

Every systematic investment plan (SIP) puts its money into a bunch of companies from different sectors. You can check the profile of the companies picked by the MF and see how they have performed in the past. News related to the firms, their financials and future prospects can also be considered before choosing the SIP. 

Making the right choice 

Are you a conservative, moderate or an aggressive investor?  The answer will help you choose the equity mutual fund scheme you can invest in.

If you have long-term goals, have investment horizon of five years or more and a high-risk appetite, then equity schemes is the best option for you.

If you are moderate investor, largecap and multicap (they are also called diversified equity) schemes are the best options for you.

If you are an aggressive investor, midcap and smallcap schemes (high returns with high risks) can help achieve your financial goal.

Returns

One should check returns given by a fund during different time periods and compare them with a benchmark, usually an index and other funds in the same category.  There is no guarantee that mutual funds will repeat their past performance in the future but a thorough look at the funds and their peers will give you an idea of which funds can prove to be a better bet for you compared to others.

Large corpus size 

The total corpus, or asset size, of the mutual fund is large. This gives you the confidence that a large number of people have subscribed to the fund.  There are mutual funds whose corpus will be small but if you are a first time investor, you should ensure that your money gets parked in a SIP with large asset base which will inspire confidence in your future investment with the fund.