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5 Crucial Factors For Choosing the Best SIP

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5 Crucial Factors For Choosing the Best SIP

What is SIP?

SIP is an abbreviation for the term Systematic Investment Plan offered by mutual funds. It is an investment plan that lets the investors invest any sum of money per their requirements. The investment frequencies can be weekly, monthly, and quarterly. They are generally considered a safer option because they help investors invest in a disciplined manner regardless of market volatility and timing. SIPs are a user-friendly, hassle-free, and convenient way to invest in mutual funds.


SIP Benefits

The benefits of investing in SIP are plenty:

  • You feel more responsible and committed to saving money and attaining your financial goals.
  • SIPs are flexible; you can continue investing for the long term. It is not mandatory. You can decide as per the situation.
  • SIP investment can deliver lucrative returns for longer terms.
  • SIPs can be self-structured; you can plan your investment plan and need not follow a rigid saving model.


SIP v/s Mutual Fund

Even though SIPs and mutual funds sound similar and often confuse people, both are very different.


A mutual fund is an investment instrument, whereas SIP is an investment method through mutual funds. Mutual funds offer investment options other than SIPs too.

In short, we can say that mutual funds are a product of investment, whereas SIPs are a way to invest.


5 Factors for Choosing the Best SIP

It is necessary to consider several factors while choosing SIP so that they are profitable to you. Here are the most crucial factors:


  1. Know your investment objective.


It is important to have clear investment goals for maximum benefits. You must decide whether you want to invest in the short term or long term, understand the SIP plans in advance, and choose wisely.


2. Understand the fund types before choosing.

It is advisable to learn about the field before entering. So, you should know whether you want an open-ended SIP or a close-ended one before choosing to invest.

Open-ended: In this type of SIP, you are free to enter or exit anytime without any restrictions.

Close-ended: This type of SIP is open for investment for a specific period when the scheme launches. No investment is allowed after the period ends.


3. Observe the past data, performance, and returns before investing.

Carefully study and analyze the past performance of the plans before investing. You should compare the past 3–4 years’ results of various options before investing.


4. Consider the expense ratio.

If your research takes you to two or more similar options, you can consider the expense ratio of the two, and then choose the one with the minimum expense ratio. The expense ratio refers to the administration charges and management costs of SIP. It is the annual fee for the funds.


5. Know the entry and exit load.

It is good to know the entry and exit load rules in advance. Nowadays, SEBI has stopped the entry load, the cost inherited while entering into any investment. The only charge is the exit load. It varies as per the investment plan and the tenure.

So, it is wise to know these entry and exit loads before making any big financial commitments towards SIP.


Takeaways

Now that you have a clearer idea about SIP, you can set your financial goals smartly before investing. Consider each factor carefully, find the right time to invest in SIPs, and earn the highest profits.

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