Investing in mutual funds through SIP is a great way to build wealth over time. It encourages investment discipline, which, in the long run, produces greater returns. However, it is a little difficult to find the right SIP plan. Here, get yourself familiarised with the best SIP plans for 5 years investment horizon.
What Is a SIP?
A System Investment Plan or SIP is a way of investing in mutual funds where you deposit a specific sum of money at regular intervals. For example, you can invest in them weekly, monthly, or annually. The main purpose of SIP is to encourage disciplined investment, which, in the long run, produces great returns due to the power of compounding.
Here are some of the benefits of investing in MFs with the help of SIP:
SIP investments create a snowball effect that produces big returns on the long-term horizon.
There is no need to invest a big sum of money; you can start SIP with just ₹500 per month.
SIPs eliminate the need to track the market and stocks to find an investment opportunity.
By constantly investing in MFs through SIP, you can beat inflation.
What Factors Do You Need to Keep in Mind When Choosing the Best SIP Plans for 5 Years Investment Horizon?
1. Be clear about what you want
A lot of people, just to reduce their taxable income, invest in tax-saving mutual funds. But they are not just capable of reducing taxes. They can do a lot more than that. They can help you achieve your dream life if used wisely. Therefore, you must be clear about what you want to get using them. This will allow you to find the right SIP plan for yourself.
2. Fund Performance
When choosing the best SIP plans for 5 years investment horizon, you cannot ignore the funds’ historical performance. As a general rule of thumb, always look for plans that have constantly produced good returns over the years. By doing this, you can ensure the safety of your investments and generate amazing returns through the stock market.
3. Expense Ratio
The expense ratio is basically a fee that you pay to an AMC to manage a mutual fund. This amount is debited from the amount invested in mutual funds through SIP and can affect your returns. While investing in MFs through SIP, look for funds that have a decent expense ratio to get good value from your investments.
Best SIP Plans for 5 Years Investment Horizon
1. Axis Max Life Sustainable Wealth 50 Index Fund
It is a passively managed equity fund that mimics the performance of the Axis Max Life Sustainable Yield Index. This fund includes 50 stocks with high Dividend Yields and Free Cash Flow Yields. The fund has produced returns of 40.51% in the last 5 years.
2. Quant Small Cap Fund Direct Plan-Growth
This fund aims to generate capital appreciation by investing in small-cap companies. In the last 5 years, the fund has generated returns of 42.89%.
3. Tata Digital India Fund
This equity mutual fund invests its resources into equity-related assets of the leading Indian IT companies. The investment strategy has achieved a Compound Annual Growth Rate of 26.64% throughout the years.
4. Aditya Birla Sun Life Digital India Fund Direct-Growth
ICICI Prudential Technology Fund functions as an equity mutual fund platform that concentrates its investments in Technology, Telecom, Media sectors and similar industries. For the last five years the fund has generated between 20-26% return on investment.
How Can You Maximise Your SIP Returns?
Here are a few tips that can help you produce better returns through SIPs:
Start investing early; the earlier you start, the better your returns will be. Even if you can’t invest a big amount right now, consider making small investments and then increasing them over time.
Stick to investing and never skip your SIP instalments. Remember, the magic of compounding cannot work if you don’t invest consistently.
Pick a fund that matches your requirements. For example, if your risk tolerance is low, consider investing in an index fund or debt fund. Similarly, if you have a high-risk tolerance, then you can consider investing in equity-based plans.
Conclusion
SIPs prove to be an exceptional method to fulfill all your financial targets. Before putting your savings into such investments you need to research about them thoroughly and employ SIP calculators to develop your investment strategy. You should evaluate three additional factors which include your tolerance for risk alongside fund historical returns and investment purpose. Your regular investments together with these considerations will result in building a substantial wealth in short-term periods. So, what are you waiting for? Today’s investment activity will result in a gradual money accumulation pattern.
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