Mutual funds are pooled investment vehicles wherein asset management companies raise the capital through many investors, and invest it into assets like shares, bonds, instruments, etc.
You as an investor can invest in mutual funds in lump sum amounts or recurring monthly investments through a systematic investment plan (SIP).
As per data released by Association of Mutual Funds in India (AMFI), SIPs have become a popular option among investors looking to opt for mutual funds.
Advantages of SIPs over lump sum
● Risk management
Like all other financial schemes, mutual funds fluctuate with the market. Many investors fear market dips decreasing the value of their investments.
However, SIPs are spread out evenly over months into different asset classes—shares, debt, etc. Hence, you can reduce the risk regardless of what assets are being affected.
● Power of compounding
Investing in mutual funds through SIPs offers many benefits, like the power of compounding.
The compound interest gets added to the existing principal, which becomes the new principal. This process continues for the duration of the plan. Therefore, SIPs could bring you higher returns in the future.
● Rupee cost averaging
Your SIP invests money periodically over months or years in different assets, irrespective of the market conditions. Your fixed investment buys fewer units when the market is high and more when it is low.
This is called rupee cost averaging. It averages the cost of purchasing assets over time and lets you avoid timing the market. It also gets you potentially higher returns.
Best mutual funds for long-term SIPs
- Equity mutual funds
These mostly invest in equity shares. They can further be small-cap, mid-cap, long-cap, multi-cap, sector and thematic funds, index funds, etc.
As a long-term investor, you might want to know the best mutual funds for a 15-year investment horizon. Some of the best mutual funds for SIP for 15 years are:
|Franklin India Technology fund||Rs. 325.4159||Rs. 500|
|ICICI Prudential Technology Fund||Rs. 143.17||Rs. 1000|
|Aditya Birla Sun Life Digital India Fund||Rs. 123.99||Rs. 1000|
- Debt mutual funds
Long-term, risk-averse investors tend to prefer debt mutual funds as they offer comparatively lower but stable returns. These funds invest in debts and money market instruments like certificates of deposit, treasury bills, government bonds, etc.
Some of the top-performing debt mutual funds you can consider investing in 2021-2022 are:
|Nippon India Credit Risk Fund||Rs. 26.9042||Rs. 500|
|HDFC Credit Risk Debt Fund||Rs. 18.9186||Rs. 1,000|
|ICICI Prudential Medium Term Bond Fund||Rs. 34.9352||Rs. 1,000|
- International Mutual Funds
As the name suggests, these mutual funds invest only in stocks of companies based outside India. While these are high risk, you get to spread your risks across different overseas stock markets – like the US or Brazil. The returns are potentially higher, too.
Some best-performing international mutual funds are:
|DSP World Mining Fund – Direct Plan||Rs. 14.98||Rs. 500|
|Invesco India Feeder – Invesco Global Equity Income Fund||Rs. 18.80||Rs. 1,000|
|Kotak Nasdaq 100 Fund Of Fund||Rs. 11.26||Rs. 1,000|
*as of August 24, 2021
You may have researched and noted down all the last 15 years’ mutual fund returns. However, investing in stock market may still feel like walking on a tightrope. As a beginner, you want to make secure investments. Hence, it is prudent to reach out to a financial advisor who can curate plans that are unique to your needs, objectives and risk tolerance.