Posted on 7/3/2023 6:30:00 PM

Mutual funds are one of the India's most preferable investment vehicles. According to AMFI, the total Assets Under Management (AUM) of the mutual fund industry in India surged to INR 41,62 trillion as on April 30,2023, which was around INR 8.26 trillion, as on 30th April 2013. This indicates the industry’s growth, which is more than 5 times, over the past ten years.

Several factors have helped grow mutual funds in India, but customisation as per investors’ risk appetite and goals ismakes it more preferable. Mutual funds allow you to invest in different schemes, each with a different objective and structure. 

However, picking the right scheme is challenging, especially if you're new to mutual funds. This article attempts to help you to teach you how to select mutual fund schemes and decide on the right SIP amount.

Which is the most popular method of investing in a mutual fund?
Before choosing the right mutual fund schemes, it is vital to understand SIP. SIP is a convenient method of investing in a mutual fund schemes. SIP investments systematise your investment journey by regularising your investments.

Through a Systematic Investment Plan, you can invest a fixed amount in a mutual fund scheme at regular intervals. If you remain consistent and disciplined, SIPs can help you earn good returns in the -long run.

How to choose the right SIP amount?
Choosing the right SIP amount can help you invest peacefully and maintain your lifestyle. Here are certain factors you must consider to be able to select the right SIP amount:

•  Pin down a financial goal

•  Note the financial goal's current cost

•  Consider the average inflation rate

•  Calculate the financial goal's amount in the future by accounting for inflation

•  Note down your expectations from the mutual fund investment

•  Decide on a SIP amount after considering your daily expenses

You need not make any calculations yourself to calculate the right SIP amount. You could consider an online SIP calculator. It gives you a clear idea of your future financial goal and how you wish to achieve it through your mutual fund investment.

How to select mutual funds for SIP?
Consider the six points mentioned below to select the suitable  mutual fund schemes for SIP:

1. Financial goal
The first step to selecting the best mutual fund schemes is to pin down your financial goal. When you have a goal in mind, you can shortlist schemes that have the potential to help you reach the goal within your desired timeframe.

2. Consider the costs
Mutual fund investments come with certain costs, represented by the "expense ratio." An Asset Management Company (AMC) charges an expense ratio from investors in return for managing their funds. A lower expense ratio implies fewer charges, although it doesn't tell you anything about the quality of the schemes.

3. Study the mutual fund's portfolio
You must also study the performance of the mutual fund scheme over time. While the historic performance might not wholly indicate its future trajectory, it could give you an idea of how the scheme might perform. Also, when you analyse the scheme's portfolio, you understand whether it suits your risk appetite.

4. Assess the mutual fund's management
When you invest in a mutual fund scheme, you give your capital to a mutual fund manager, who invests the capital in various assets.. After doing so, your conviction in the scheme might increase or decrease, ultimately helping you make the right choice.

5. Check the mutual fund's AUM
A mutual fund house with more considerable Assets Under Management (AUM), number of Schemes, customer experience etc may be more trusted than those with less AUM. Before shortlisting mutual fund schemes for SIP, research the mutual fund company's AUM. If you're unfamiliar with reading AUM, you could consult a professional financial advisor.

Mutual funds are popular because they offer flexibility and convenience. You can invest in the scheme of your choice and withdraw your investment whenever you want to (except for close-ended mutual fund schemes) subject to certain exit laod. It is an excellent engine to create long-term wealth, but ensure you research thoroughly before investing in any mutual fund scheme.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

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