Updated on 2 April 2021
The time has come to review your mutual fund portfolio to weed out the under former and add new funds to boost and balance your portfolio.
Mutual funds are as risky as investing in the stock market and tends to provide good returns in the long term only but you can minimize the risk by following the SIP (Systematic Investment Plan) method.
I will throw light on all the aspects of SIP and will also tell you how SIP is better than lump sum investment. After that you will get to know the best SIP investment schemes in 2020 in India.
What is SIP?
Systematic Investment Plan (SIP) is a method for investing a fixed sum in mutual funds at regular intervals, say weekly, monthly, or even quarterly. You can create a financial discipline in your life along with a passage for wealth building.
SIP is a hassle-free investment. Because the SIP amount is auto-debited from your bank account and invested in your mutual fund scheme. On every SIP some additional units of the mutual funds are purchased at the current Net Asset Value (NAV) and added into your account. The major benefits of SIP are Rupee Cost Averaging and the power of compounding.
How is SIP Better than Lump Sum?
You can invest in mutual funds in two ways – either SIP or lump sum. Both SIP and lump sum investments have their own pros and cons.
In the SIP, you invest fixed sum at regular intervals regardless of the market conditions and you are able to buy more units when the market is low automatically. This results in a lower average price leading to higher returns. With the lump sum investment, that doesn’t happen because you have already blocked your amount at a fixed price in the past.
With this advantage to invest at an average price over time makes SIP a better option. SIP is a safe option in volatile markets as you invest with no worries of the markets, in case of lump sum investment, the market movements are highly important.
How to Choose Best Mutual Fund Scheme
You should consider the parameters below while choosing any mutual fund scheme.
- Standard Deviation measures the deviation of the mutual fund return from the average. Lower the deviation; lower the volatility, which is good.
- Sharpe Ratio calculates the average of the return of the fund over and above the risk free return and standard deviation of the excess return. Higher the Sharpe ratio, better the performance of the fund.
- Sortino Ratio works similar to sharpe ratio but sortino ratio takes into account only the negative returns of the fund over and above the risk free return. Higher the Sortino Ratio, better the performance of the fund.
- Beta is the measurement of volatility of the fund from its benchmark index. A beta of 1 implies that fund movement is symmetry with the index movement. Lower the Beta, lower the risk which is good for fund.
- Alpha measures the ability of the fund manager in generating positive return wrt to risk free returns and index return. Higher the alpha, better the risk taking ability of the fund manager.
- R-Squared measures the correlation of NAV with its benchmark index. Similar to Beta, 1 implies a perfect correlation.
- Expense Ratio is the expense burden which is borne by the investor. Lower the expense ratio, higher the returns of the fund.
- Fund having Fund Manager associated with longer tenure is given preferences.
- Only top 15 recognized Fund Houses are considered while best selecting mutual fund scheme.
- Higher Net Assets (AUM) under the fund shows the confidence of the investors.
Best SIP Mutual Funds to Invest in India 2020
I have curated the lists under 2 categories – equity and debt.
Best Equity SIP Mutual Funds
|Fund Name||1-year Return||3-Year Returns|
|Axis Bluechip Fund||18.78%||17.97%|
|SBI Magnum Multicap Fund||11.58%||11.29%|
|Mirae Asset Large Cap Fund||15.13%||13.21%|
|ICICI Prudential Bluechip Fund||10.53%||10.97%|
|SBI Bluechip Fund||10.90%||9.84%|
Best Debt SIP Mutual Funds
|Fund Name||1-year Return||3-Year Returns|
|Aditya Birla Sun Life Savings Fund||5.58%||4.37%|
|HDFC Short Term Debt Fund||10.26%||7.75%|
|Nippon India Low Duration Fund||7%||7%|
|Aditya Birla Sun Life Credit Risk Fund||3.09%||5.46%|
|L&T Low Duration Fund||5.40%||6.49%|
You should invest in the mutual funds under both categories to balance your portfolio. Further, you should start investing in mutual funds with a mindset of minimum tenure of 3 years to reap good returns. You can also do switching from one mutual fund scheme to another with the help of STP (Systematic Transfer Plan). Similar to SIP but it allows you to switch mutual funds schemes in between.
If you have any query related to mutual funds or SIP, do tell me in the comments.