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How to Choose the Best SIP Plans?

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SIP (Systematic Investment Plan) has emerged as one of the most favoured investment avenues in our country. It has changed the way individuals approach investing and wealth creation. Through SIP, investors commit to regularly investing a fixed amount, generally on a monthly basis. This amount is automatically deducted from your linked bank account and can be changed as your financial circumstances change. Thus, SIP offers accessibility and flexibility unparalleled in traditional investment methods such as fixed deposits. 

But knowing how to select the best SIP plans is almost an art. India boasts over 40 Asset Management Companies (AMCs), each offering a plethora of schemes. With such diversity, selecting the most suitable SIPs is like finding a needle in a haystack. It demands thorough research on two fronts – understanding your financial goals and circumstances and analysing the fund’s characteristics. Only then can one pinpoint the most suitable SIP for their financial needs. We have laid out 10 steps to help you understand how to choose SIP based on both these aspects. Let’s go!

Step 1: Define Your Financial Goals

The first step before making any kind of investment is determining your financial goals. What is it that you plan to achieve through SIP? Are you looking to accomplish short-term financial goals, such as funding a vacation or purchasing a car? Or are you focused on realising long-term financial dreams like a peaceful retirement or building a corpus for your child’s higher education?

These financial goals will form the foundation of your investment planning, so it’s important to define them well. One way to do so is through SMART goal setting. SMART stands for Specific, Measurable, Attainable, Realistic, and Time-bound. Each of these five aspects ensures that your financial goals are clear and well-defined, allowing you to measure your progress toward achieving them, achievable within your means, aligned with your overall objectives, and achieved within a specific time frame.

Besides giving direction, SMART goals will also help you eliminate many SIPs that do not align with your specific objectives and make selecting the right SIP much easier. For example, if you want to plan for retirement, you can narrow your options to equity SIPs. A hybrid fund may be a better choice if you want to achieve something in the medium term with moderate risk tolerance. 

Also Read: How SIPs Can Help You Build Wealth Over Time

Step 2: Assess Your Risk Tolerance

The next step is risk assessment. How much risk one can take depends on not just preference, but also factors such as age, income, and financial responsibilities. While staying within one’s comfort level is important, it is also important to assess the personal and financial circumstances. This is better explained through an example. Suppose Rajiv, a salaried 49-year-old male wants to build a retirement fund. For some reason or another, he wasn’t able to give retirement planning the attention it deserved. Now as an employee, he has very limited working years left, so it is considerably harder for him to amass the amount he would need post-retirement. If he starts investing now, he’d likely invest in low-risk instruments or SIPs as he has a shorter time frame to build his retirement fund, and he would want to preserve his capital. 

Now suppose Sanjana, a salaried 25 year old also wants to plan for retirement. The advantage she has over Rajiv is time, which will allow her to take higher risks and invest in equity SIP. With higher risk comes higher rewards, but due to the long-term horizon, she can withstand market fluctuations and benefit from the growth of equity investments.

Similarly, other factors such as income and financial responsibilities help one determine the level of risk one wants to take. Individuals with low income invest in SIP with very low risk because their focus is also on capital preservation. 

When you have a clear idea of your risk profile, you can select suitable SIPs accordingly. To make it easier for investors, SEBI asks every AMC to display a risk-o-metre. Every mutual fund fact sheet comes with a risk-o-metre which illustrates the level of risk associated with the scheme. For a more advanced comparison amongst different schemes, you can use risk-adjusted ratios such as the Sharpe ratio, Treynor ratio, Jensen’s Alpha, and Sortino Ratio.

Also Read: What is Credit Risk?

Step 3: Research Different SIP Plans

Now that you have thoroughly assessed your financial goals, risks, and situation, you are ready to narrow down your options and select the most suitable SIP plan. This task can be a bit overwhelming because there are just so many AMCs and schemes in India. 

A nice filter for selecting AMCs is experience. Look for reputed AMCs that have been working in the Indian mutual fund industry for a long period, say 10 years. This doesn’t mean that the newer AMCs are bad, just that they haven’t yet proven themselves. It’s better to stick to established AMCs with a proven history of performance and reliability, so you can have more confidence in the stability and effectiveness of your SIP choices. Another good filter is AUM or Assets Under Management. A higher AUM generally means that the trust and confidence investors have in the particular mutual fund house is higher. It also indicates that these AMCs have more resources and expertise to manage investments effectively.

On to scheme selection. Here too, you can use some filters to further narrow down your options such as fund history and performance, fund AUM, asset allocation, fund manager’s expertise, expense ratio and other performance analysing ratios. We are going to take a closer look at them in the steps that follow. 

While selecting, remember that it’s not about which sip plan is best in India, but rather which is the best sip for your unique circumstances. 

Step 4: Analyze Fund Performance

When you analyse a fund’s performance, the primary focus should be on how consistent the fund is. This is mainly measured by looking at the past returns. That’s why just looking at last year’s performance is unwise. The performance should be measured over a period of 5, 7, or 10 years. If the returns are consistent, then the scheme can be considered reliable. 

There is another important thing to keep in mind while comparing two different funds. Different types of mutual funds have different returns, for example, an equity fund will have higher returns compared to a balanced fund. For this reason, an equity fund should only be compared with another equity fund. Comparing funds across different categories can lead to incorrect conclusions and misguide you.  

While you are doing this, always remember that a good past performance does not guarantee good future results. But even so, it is a good indicator of the direction the fund is headed.

Step 5: Examine Fund Manager Expertise

One of the biggest advantages of investing in SIP is professional fund management. These fund managers have years of experience in managing incredibly large corpus, and have entire teams working under them to conduct research, analyse market trends, and make informed investment decisions. To take full advantage of this active management process, one must carefully study the fund manager’s history and the process they follow for managing the fund. The manager is responsible for handling your money, so naturally, analysing their track record is important. The more you know about the manager, the more confident you’ll feel. See how they managed risk in the past. Do they focus on short-term returns? Or do they have a long-term perspective? For example, if you are investing in an equity fund, you’d ideally prefer a fund manager focused on the long-term.

If you are investing in a fund that aims to outperform the index, then you must analyse how often and how consistently the fund manager was able to achieve this objective in the past. A lot of fund managers manage more than one fund, so like the fund’s performance, the manager’s performance should be analysed over a period of time rather than just one year. 

Step 6: Consider Fund Expense Ratio

The expense ratio is the fee charged by mutual funds to cover their expenses, which includes operating expenses, management fees, office costs, administrative costs, and other marketing expenses. It informs you about the amount you have to pay in order to invest in a specific fund, so naturally, it has an impact on your overall returns. There is an expense ratio associated with every scheme, and it varies from scheme to scheme. The lower the expense ratio the better for investors. You can also explore the option of investing via a direct plan or a regular plan.

In a direct plan, the total expense ratio would be lower, and you’ll earn higher returns. This can however be a risky road as direct plans require investors to manage their investments independently without the help of a distributor or advisor. A good financial advisor can in fact help one earn 2% to 3% more even after the commission, than they would have earned investing directly.

But remember that this is just one factor among many when selecting the most suitable SIP. Simply selecting the scheme with the lowest expense ratio can be shortsighted. A slightly higher expense ratio may be justified if the fund consistently outperforms its benchmark and aligns with your investment goals. Hence, it is important to evaluate the expense ratio hand in hand with other relevant criteria to make a well-informed investment decision.

Step 7: Review Fund Portfolio and Asset Allocation

Another key advantage of mutual fund investing is diversification. When you invest in the stock market, you are exposed to the performance of individual stocks. However, mutual funds invest in a diversified portfolio across different asset classes and industries. This diversification helps spread risk and reduce the impact of a decline in any single investment on the overall portfolio. Every mutual fund fact sheet details where the fund manager has allocated the assets and in what capacity. You should take advantage of this transparency and make sure that the fund’s asset allocation strategy aligns with your investment objectives and risk profile.

For example, if an investor has a conservative risk profile, they might prefer a fund with a higher allocation to fixed-income (debt) securities and a lower exposure to equities. On the other hand, investors with a higher risk tolerance may be comfortable with a fund that has a larger allocation to equities for higher growth opportunities. 

The asset allocation changes from time to time, and the details of the changes are always present in the mutual fund fact sheet. It’s a wise idea to keep track of these changes and periodically review the fund’s asset allocation to ensure that it continues to align with your investment objectives and risk tolerance.

Step 8: Evaluate SIP Flexibility and Convenience

All SIPs are quite convenient and flexible, but one must also be aware of their liquidity. Before you invest, you should assess whether or not the scheme has a lock-in period. An Equity Linked Savings Scheme (ELSS), for example, is a type of mutual fund that has a lock-in period of three years. Other than that you must also check if there is an exit load associated with the scheme. An exit load is a fee charged by the AMC at the time of redeeming units. Not all schemes charge an exit fee, but the ones that do can negatively impact your overall returns. But again, knowing how to find the best sip plan is more than just about finding the highest returns or lowest fees, it’s about selecting a plan that strikes the right balance between the many factors we have discussed. 

Before investing if you feel that you may need to redeem your investment before maturity, it’s important to carefully consider the liquidity terms of the investment. Assess your own financial situation and determine the likelihood of having to access your investment before the maturity date. If you feel there’s a possibility of needing liquidity in the short term, it would be wise to opt for SIPs with more flexible redemption options without penalties or lock-in periods. Evaluating the liquidity aspect of the SIP can help you make an informed decision and avoid any liquidity constraints that may pop up in the future.

Step 9: Understand Tax Implications

Taxes can have a significant impact on your mutual fund returns. Before selecting the SIP, it is important to consider its tax implications. A capital gains tax is charged when one redeems their investment, which is based on how long the investment was held. Taxation can be a little bit tricky. For example, if you sell your equity mutual fund before 12 months, a Short-term Capital Gain (STCG) tax is levied at 15%. Hold it for longer than 12 months, and a 10% Long-term Capital Gain (LTCG) is charged on profits exceeding Rs. 1 lakh in a financial year. Thus LTCG is exempt from tax up to Rs. 1 lakh.

In a debt mutual fund, STCG is applicable when the mutual fund is sold within 36 months, and the gains are taxed as per the slab. LTCG is applicable if the holding period exceeds 36 months and is also taxed as per the slab. If the investment was made before 31st March 2023, LTCG gets an indexation benefit and has a different calculation. The government regularly updates taxation rules, so it’s important to keep up with the relevant news.

Some mutual funds also offer tax benefits. Equity Linked Savings Schemes (ELSS) are also called tax-saving mutual funds as they offer benefits up to Rs. 1.5 lakh under Section 80C. The fund manager mainly invests in shares, so the risk, as well as returns associated with ELSS, are high. However, they do come in with a lock-in period of 3 years, so it may not be suitable for investors with liquidity concerns. 

Also Read: Benefits of Tax Planning

Step 10: Seek Professional Advice if Needed

Selecting the most suitable SIP is indeed quite a challenging task. Many factors at play can influence our decisions. A SIP planner can help you sift through various options and recommend the ones that align with your unique financial situation and goals. A word of caution is also owed here. There are many advisors in the market that force upon a single scheme as the best for their clients for their gain. One must be wary of these individuals. 

You can find the most suitable and best sip planner in Fincart. We guide you through a transparent fund selection process and recommend time-tested and reliable schemes with high AUM that have done excellently in aspects such as past performance and fund manager’s expertise. Moreover, these schemes will be tailored to you, taking into account your financial goals, your risk profile, your investment horizons, and your overall financial situation. We regularly review our clients’ investments and suggest changes accordingly. Either way, if you are unsure about any scheme terms or have any hesitation about which would be the most suitable scheme for you, you should always seek help from a professional.


That’s quite the journey, isn’t it? Even after you’ve selected a fund, your job doesn’t end there. Your investment demands regular monitoring. You must review the fund’s performance and break away if you feel that the fund’s objectives no longer align with yours. It’s also a good idea to keep yourself updated about any news related to the fund or taxation. Sometimes there are changes in the fund’s management, which can also impact how the fund will perform. That’s why when you are researching the AMC it’s crucial to get an idea of the process they follow. If they have a specific process, your investment likely won’t be impacted much by the fund manager leaving. 

Follow these steps and you’ll get a good understanding of how to find the best sip plan for your financial needs and goals. In case you are overwhelmed by options or just uncertain about the selection process, don’t hesitate to seek guidance from a SIP advisor. SIPs, especially equity SIPs work best in the long term due to the power of compounding interest and rupee cost averaging, so it is important to make well-informed decisions from the start. 

Happy Hunting!