SIP or systematic investment plan is one of the two ways of investing in mutual funds. The other way of investing in mutual funds is investing a lump sum. Investing in mutual funds via an SIP allows you to stagger your investments over and invest a small sum regularly.
What are Best SIP Mutual Funds?
Before we proceed to understand SIPs, let’s first understand mutual funds. A mutual fund is formed when a pooling entity (fund house or asset management company) pools investments from several individuals and institutional investors with common investment objectives to purchase securities. Mutual funds are broadly classified into equity funds, debt funds, and balanced/hybrid funds depending on the amount of their equity exposure.
Investing in mutual funds via an SIP is advisable for the first-time mutual fund investors as it helps them in instilling a sense of financial discipline in the long run. The frequency of your SIP can be weekly, monthly, or quarterly, as per your comfort. Most millennials prefer taking the SIP route as it gives them a high degree of flexibility. Investing through SIPs compels you to set aside a fixed sum regularly, which is what is needed to make investing a habit.
Top SIP Mutual Funds
The table below shows the best equity funds:
| Mutual fund | 5 Yr. Returns | 3 Yr. Returns | Min. Investment | Rating | |
|---|---|---|---|---|---|
Quant Small Cap Fund - Direct Plan-Growth | 24.75% | 54.95% | ₹5000 |
| |
Quant Small Cap Fund Reinvestment of Income Distribution cum capital withdrawal Option Direct Plan | 23.3% | 48.67% | -- | NA | |
Quant Small Cap Fund Reinvestment of Income Distribution cum capital withdrawal option | 22.52% | 46.87% | -- | NA | |
ICICI Prudential Commodities Fund Direct Plan Growth | -- | 46.27% | ₹5000 | NA | |
Quant Infrastructure Fund - Direct Plan-Growth | 21.32% | 43.1% | ₹5000 |
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Quant Flexi Cap Fund - Direct Plan - Growth | 18.48% | 38.3% | ₹5000 |
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Quant Mid Cap Fund - Direct Plan-Growth | 21.11% | 37.13% | ₹5000 |
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Quant Infrastructure Fund Growth | 26.2% | 37.08% | -- | NA | |
Quant Infrastructure Fund Reinvestment Inc Dist cum Cap Wdrl option Direct Plan | 19.7% | 36.96% | -- | NA | |
Quant Infrastructure Fund Payout of Income Distribution cum capital withdrawal Option Direct Plan | 19.7% | 36.96% | -- | NA |
The table below shows the best debt funds:
| Mutual fund | 5 Yr. Returns | 3 Yr. Returns | Min. Investment | Rating | |
|---|---|---|---|---|---|
ICICI Prudential India Opportunities Fund Direct Plan Growth | -- | 31.29% | ₹5000 | NA | |
ICICI Prudential BHARAT 22 FOF - Direct Growth | -- | 27.08% | ₹5000 | NA | |
DSP Healthcare Fund - Direct - Growth | -- | 21.46% | ₹500 | NA | |
Aditya Birla Sun Life CEF - Global Agri Plan - Growth-Direct Plan | 9.9% | 19.63% | ₹1000 | NA | |
Baroda BNP Paribas Dynamic Bond Fund - Direct Plan - DAILY IDCW Option- Reinvestment | 13.68% | 18.56% | ₹5000 |
| |
Navi Liquid Fund - Direct Plan - DAILY IDCW- Reinvestment | 11.52% | 16.25% | ₹10 | NA | |
PGIM India Corporate Bond Fund - Direct Plan - Annual IDCW- Payout | 11.28% | 15.84% | ₹5000 |
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PGIM India Corporate Bond Fund - Direct Plan - Annual IDCW- Reinvestment | 11.28% | 15.84% | ₹5000 |
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ICICI Prudential Multicap Fund - Dividend | 8.25% | 15.15% | ₹5000 |
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Franklin India Low Duration Fund Growth | 11.28% | 13.66% | -- | NA |
The table below shows the best hybrid funds:
| Mutual fund | 5 Yr. Returns | 3 Yr. Returns | Min. Investment | Rating | |
|---|---|---|---|---|---|
Quant Multi Asset Fund - Direct Plan-Growth | 20.93% | 31.67% | ₹5000 |
| |
Quant Absolute Fund - Direct Plan-Growth | 19.59% | 31.28% | ₹5000 |
| |
Quant Multi Asset Fund Reinvestment of Income Distribution cum capital withdrawal Option Direct Plan | 20.77% | 28.42% | -- | NA | |
Quant Multi Asset Fund Payout of Income Distribution cum capital withdrawal Option Direct Plan | 20.77% | 28.42% | -- | NA | |
Quant Absolute Fund Direct Plan Reinvestment of Income Distribution cum capital withdrawal option | 17.78% | 28.06% | -- | NA | |
Quant Absolute Fund Direct Plan Payout of Income Distribution cum capital withdrawal option | 17.78% | 28.06% | -- | NA | |
ICICI Prudential Thematic Advantage Fund (FOF) - Direct Plan - Growth | 15.38% | 27.92% | ₹5000 | NA | |
Aditya Birla Sun Life PSU Equity Fund Direct-Growth | -- | 27.71% | ₹500 | NA | |
Quant Absolute Fund Reinvestment of Income Distribution cum capital withdrawal option | 16.7% | 26.93% | -- | NA | |
Quant Absolute Fund Payout of Income Distribution cum capital withdrawal option | 16.7% | 26.93% | -- | NA |
Who Should Invest in Best SIP Mutual Funds?
Investing via SIPs in mutual funds is advisable for all individuals. Mainly, SIPs are advisable if you are a first-time investor. By investing in mutual funds via an SIP, you will get the glimpse of what mutual funds are capable of. Also, if you are new to the world of equity-linked investments, then it would be best to get started by investing in mutual funds via an SIP.
Investing via an SIP alleviated the need to arrange a lump sum. Therefore, you can get started with your investment journey with a small amount. There are mutual fund plans that allow you to invest a sum as low as Rs 500 a month through an SIP. This option is not available with most other investment options.
How SIP Works?
SIP works in a simple principle, just like a child’s piggy bank. A child deposits minimal amounts in the piggy bank from time to time and saves a substantial sum. SIP follows the same principle, the only difference being investments in a piggy bank are idle, but for the best SIP plans, you invest in a specific asset class via mutual funds.
Based on the NAV or the price of each share of your fund on that particular day, you will receive a specific unit of that mutual fund. You can start investing from as low as Rs.500 and increase the amount to any limit at a fixed time interval.
When you opt for the best SIP investment, a fixed sum is debited from your current or savings account and invested in your selected mutual fund scheme. The amount is debited on a quarterly or monthly basis. You can either periodically redeem the SIP or opt for a considerable sum at a time. In the case of periodic withdrawals or SWP, investors can get regular payouts from the amount credited to their bank account.
What are the Benefits of SIP?
Here are some of the benefits of investing in the best SIP plans in India:
- Financial planning at its best
You can plan your finances in a better way when you invest in SIP. With a fixed amount getting debited for your mutual fund investment, you can plan your monthly budget accordingly.
- Minimum investment
You can start investing as low as Rs.500 monthly, so you need not worry about a lump sum investment amount.
- Invest irrespective of the market condition
Whether it is a bullish or bearish market, you can start investing in SIP under different market conditions. Market volatility does not influence SIP investment. So, all you need to do is execute the best SIP to invest and start investing your preferred amount each month.
- Teaches financial discipline
SIP is a systematic investment plan where you do not get a chance to miss any of the deposits. Once you start a SIP, the selected amount gets automatically debited from your bank account every month.
- Step-up SIP
As per expectations your investment shall increase simultaneously with your income. However, applying for a new SIP for each financial year is a bit hectic. So, SIP comes with a step-up facility where you can choose your preferred amount to step up per year while applying for SIP.
Is Investing Through SIPs Better Than Lump Sum?
Investing via lump sum requires you to arrange a large sum of money, say Rs 50,000. Investing a lump sum in a mutual fund scheme is similar to investing in a bank fixed deposit. On the other hand, investing via an SIP does not need you to have a substantial amount to get started. As mentioned earlier, you can start your investment journey with a sum as low as Rs 500 a month.
If you are to get the most out of your lump-sum investment, then you should necessarily time the markets. Lump-sum investments are advisable only when the markets have hit rock bottom, and they are sure to go up in the coming days. Investing in mutual funds via an SIP does not require you to time the markets as you will get the benefit of rupee cost averaging over time.
Advantages of Best SIP Mutual Funds
Investing in mutual funds via an SIP comes with a host of benefits. The following are some of the significant advantages of investing in mutual funds through an SIP:
Rupee cost averaging
Investing in mutual funds provides you with the benefit of rupee cost averaging. Meaning, you buy lesser units when the markets are booming while you buy more units when the markets are on the bearish trend. Over time, the cost of purchase of your fund units averages out and turns out to be on the lower side. Therefore, you don’t have to time the markets.
You can invest a small sum
As mentioned earlier, investing via an SIP has alleviated the need to have a lump sum at your disposal to get started with your investment journey. The standard minimum investment amount is Rs 500. Therefore, an investible amount is not a barrier to get started with your mutual fund investments.
Flexibility
SIPs provide you with much-needed flexibility. You can start or stop an SIP at any time, and the fund house has no say in this. If you are running on a tight budget, then you may also opt to pause your SIP for some time. All these come at no cost.
You can run multiple SIPs at a time
You can initiate and run SIPs into multiple mutual fund plans parallelly. Therefore, you can benefit from various mutual fund schemes at a time. However, you have to be cautious of the funds you have chosen to invest in.
Taxability of Best SIP Mutual Fund
Regardless of the mode of investment (SIP or lump sum), the same rules of taxation apply. Dividends offered by mutual funds are added to your overall income and taxed as per the income tax slab you fall under.
Taxation of equity funds
Equity fund units redeemed within a holding period of one year will result in short-term capital gains. These gains are taxable at a flat rate of 15%. You make long-term capital gains if you redeem your fund units after a holding period of one year. Long-term capital gains of up to Rs 1 lakh a year are made tax-exempt. Any long-term gains over and above this limit are taxed at 10%, with no benefit of indexation. Units purchased through SIPs are redeemed on a first-in-first-out basis, and the rules of taxation mentioned above apply.
If you invest in an equity fund for two years and decide to redeem all your investments at once at the end of two years, then the gains from the units that have been held for more than one year are taxable as long-term capital gains while the rest is taxable as short-term capital gains.
Taxation of debt funds
Debt fund units redeemed within a holding period of three years result in short-term capital gains. These gains are added to your income and taxed as per the income tax slab you fall under. Long-term capital gains are realised when you redeem your debt fund units after a holding period of three years. These gains are taxed at a rate of 20, with the benefit of indexation.
If you invest in a debt fund for four years and decide to redeem all your investments at once at the end of four years, then the gains from the units that have been held for more than three years are taxable as long-term capital gains while the rest is taxable as short-term capital gains.
Taxation of hybrid funds
If the equity exposure exceeds 65%, then the rules of equity funds taxation apply. If not, then the fund is taxed like a debt fund.
