15.5% CAGR
Best SIP Plans to Invest in India
Systematic Investment Plans (SIPs) have gained immense popularity among Indian investors. They offer a disciplined way to build wealth over time, making it an attractive choice for new and experienced investors. In this guide, we’ll explore everything you need to know about SIPs, from how they work to choosing the best plans for 2024.
Overview of SIP Plans
SIPs enable investors to invest a fixed amount in mutual funds regularly, whether weekly, monthly, or quarterly. In 2023, SIP contributions in India reached a record high of ₹14,000 crore per month, highlighting the growing trust in this investment route. SIPs help mitigate market volatility by averaging the purchase cost, offering better long-term returns.
Features of SIP
SIPs come with several investor-friendly features:
- Flexibility: Start with as low as ₹500 per month.
- Disciplined Savings: Automates your investments, ensuring consistent savings.
- Rupee Cost Averaging: You buy more units when the market is down and fewer when it’s up, reducing the average cost.
- Compounding Benefits: SIPs take advantage of compound interest, meaning your returns generate further returns over time.
According to data, a 10-year SIP of ₹10,000 per month in a good equity mutual fund can yield over ₹23 lakh, assuming an average return of 12%.
How Does SIP Work?
SIP automatically deducts a fixed amount from your bank account and invests in your chosen mutual fund. You are allotted units based on the fund’s Net Asset Value (NAV) on the investment date. Over time, the number of units accumulates, building wealth. For instance, if you invest ₹5,000 monthly in an equity fund with an average annual return of 12%, after 10 years, your investment of ₹6 lakh could grow to around ₹11.6 lakh.
SIP vs Lumpsum: Which is Best?
Both SIP and lump sum investments have their advantages. SIPs are ideal for salaried individuals who can invest small amounts regularly, while lump sum investments suit those with surplus funds. SIPs reduce risk through rupee cost averaging, whereas lump sums capitalise on bullish markets. For example, a ₹5 lakh lump sum investment in 2020 in a high-performing mutual fund yielded over ₹7.5 lakh in three years. However, SIP would spread this risk over time.
List of Best SIPs in India for 2024
Here are some top SIP plans to consider for 2024 based on historical performance and growth potential:
Why Consider Investing Through SIPs?
SIPs offer a hassle-free and automated way to invest in the stock market, requiring minimal market timing. Key reasons to invest via SIPs include:
- Affordability: Start with a small amount and gradually increase your investment.
- Power of Compounding: The longer you invest, the greater the growth potential.
- Market Volatility Management: SIPs spread your investment over time, making them less sensitive to short-term market fluctuations.
A 15-year SIP of ₹1,000 per month in a well-managed equity fund could yield over ₹9 lakh, assuming an annualised return of 12%.
Tax Implications of SIPs
SIP investments in equity mutual funds are subject to capital gains tax:
- Short-Term Capital Gains (STCG): If units are redeemed within 1 year, you incur a 20% tax on profits.
- Long-Term Capital Gains (LTCG): Gains above ₹1 lakh after 1 year of investment are taxed at 12.5%.
For debt mutual funds, STCG is taxed as per your income slab, while LTCG (for holdings over 3 years) is taxed at 20% with indexation benefits.
How to Choose the Right Mutual Fund for SIP?
Choosing the right SIP plan depends on several factors:
- Investment Horizon: Longer horizons (5-10 years) benefit from equity SIPs.
- Risk Appetite: High-risk investors can opt for small-cap or sectoral funds, while conservative investors should stick to large-cap funds.
- Fund Performance: Look at a fund's historical returns, consistency, and ratings from agencies like CRISIL.
- Expense Ratio: Lower expense ratios ensure that more of your money is invested. For instance, a large-cap fund with a 10-year consistent return of 12% and a low expense ratio could outperform a higher-expense fund with similar returns.
SIPs are powerful investment tools for building long-term wealth in a disciplined, affordable, and flexible manner. By understanding how they work and selecting the right funds based on your risk tolerance and goals, you can maximise your returns while minimising risks. In 2024, SIPs will continue to be one of the best investment options for those seeking to grow their wealth steadily.
