Step-by-step guide to choosing an SIP
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Step-by-step guide to choosing an SIP

  • Highlights

  • Set your financial goals beforehand

  • Conduct thorough research on the various fund options

  • Choose the fund type that you want to invest in

  • Decide the amount you want to invest every month

Whether you are a new investor or a seasoned player, figuring out the right SIP strategy is easy if you get the basics right. Below is a step by step guide on how to choose an SIP, so that you generate maximum returns, with least risk:

Decide your investment objective

Before you start investing, set a financial goal. Ask yourself two questions –

  • 1) Are you investing for the short term or the long term?

  • 2) What is your risk appetite?


For instance, going on a holiday abroad is a short-term goal while retirement planning is a long-term goal. It is advisable to invest in equity funds for long-term goals and in money market and debt funds for short-term objectives.

Choose the fund and fund type

Choosing the type of fund you wish to invest in creates the foundation of your portfolio. Your risk appetite plays a major role in determining the type of funds you should invest in.

Mutual funds can be broadly classified into equity funds which involve high risk investment resulting into higher returns. Debt funds like money market, income and fixed maturity funds, involving moderate risks and moderately high returns. Balanced Funds are a mixture of equity and debt funds, these are low risk plans generating steady returns.

Conduct performance research

With a wide variety of funds to choose from and multiple funds within each category, an investor would have a tough time deciding where to begin. An ideal starting point can be tracking fund performance over a period of three to five years. Avoid funds performing strongly when the market is high and collapsing as soon as the market falls. Utilize online research tools tracking fund performance. Use an SIP Calculator to gauge the ROI on your SIP.

Know the fund house

A fund is as good as its fund house. The decisions taken by the fund house shapes the fund’s performance. Before investing, read about the fund house managing the fund you plan to invest in. Ask for copies of scheme information and key information documents to get more details. This information will enable you to decide which fund house will be able to help you reach your investment goals.

Consider related expenses

While choosing a fund consider the related costs associated with it. Calculate the fund’s expense ratio as it is a recurring expense. Expense ratio is a percentage of the total assets spent to run a mutual fund. Industry experts normally advise to opt for schemes with schemes an expense ratio of up to 1.5%. Another related expense is the exit load, that an investor must pay at times of early withdrawal from a scheme.

Know the fund manager

Every mutual fund is managed by an individual termed as the fund manager. Track the ratings and performances of the funds managed by him/her, during volatile market situations. If the manager has proved his/her expertise over different investment categories and fund types, it will translate into him/her designing a sound portfolio.

The secret to a healthy SIP portfolio is disciplined investing. Try not to be affected by market volatility as the most important aspect of investment is buying more units when the market is low and selling more when the market is high.

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