The idea of investing is overwhelming for most of us. Often we don’t know how to select the best products as are so many different options available to choose from. Moreover, whatever you choose, there is no guarantee of return. However, one can escape the overwhelming experience by deciding to invest through a mutual fund. They are unique investment vehicles that allow you to take advantage of investing in the money market through a managed pool of funds.

Additionally, mutual funds offer a host of benefits, including investing through SIP, making it a popular investment option. For anyone, who wants to begin their financial journey in 2021, here is a list of the best SIP mutual funds. This list is not complete but will give you the necessary heads up.

Understand Your Purpose Of Investing

Before investing, one must understand the need and purpose of it to analyse their requirements. Why is it important? Risk and requirement analysis helps you to find the best investment option.

Understanding Financial Goals

Sometimes investors invest in mutual funds because they have some surplus funds or peers have told them to invest. But if you have clarity on why you want to invest, how much you expect as a return, and when you need the money, you can plan better with clarity and authority over your financial decisions.

Asset Allocation Is Important

Whether you plan to invest for short or long-term, proper asset allocation is vital to generate an expected return. As a rule, if you invest for a short time, avoid investing in equity vehicles. For an investment period of little than five years, put your funds in debt products of your choice, FD, RD, or debut funds. Equity investment tools work better when the time horizon is over five years.

Some of the best mutual funds in India are equity funds. These are designed to produce high returns, but even then, fund allocation in a portfolio is around 60:40, while 40 percent consists of debt instruments for even distribution of risk. However, this allocation of fund ratio is not fixed, and one can change it based on their risk appetite or financial goals.

Return expectation

This crucial third step helps you to set your expectations right.

Your return expectation should align with your financial goals. You can expect a return of 10-12 percent from equity mutual funds, whereas debt funds earn around 7 percent return. When expectations are defined, investors can stay focused on their goals and avoid knee-jerk reactions from market volatility.

Portfolio Return Expectations

This step involves adding up returns from each asset class to calculate portfolio return. Here is how it is done.

Let’s say portfolio asset allocation is 70:30 between equity and debt instruments, and the expected return from respective asset classes is 10 and 7 percent. The expected portfolio return is

(70*10)%+(30*7)= 9.1 percent

SIP Mutual Funds

There are two primary ways to invest in mutual funds – SIP, which stands for systematic investment, and lump sum.

The lumpsum investment involves timing the market. Since finding the market bottom is technically impossible, SIP is a better option that allows you to invest through all market conditions.

SIP is one of the most disciplined forms of investing in mutual funds. Moreover, it allows you to start with a small investment amount as small as Rs 500 and gradually build wealth benefiting from money cost averaging.

Some of the best SIP mutual funds in India had consistently produced index beating returns. So, let’s take a look at the list of funds that are expected to perform well in the current fiscal.

Use our SIP calculator to compute how much one can earn from a SIP.

Best SIP plans to invest in 2021

Here are the 10 best SIP mutual funds to invest in FY 21-22.

1. Quant Active Fund

2. Parag Parikh Flexi Cap Fund

3. Mirae Asset Emerging Bluechip Fund

4. UTI Flexi Cap Fund

5. Canara Robeco Bluechip Equity Fund

6. Axis Focused 25 Fund

7. Axis Bluechip Fund

8.Canara Robeco Flexi Cap Fund

9. DSP Flexi Cap Fund

10. Principal Focused Multicap Fund

These names will give you a fair idea as to where to look.

Conclusion

SIP allows investors to enjoy the benefit of investing in the money market in a disciplined fashion. Many consider a mutual fund based on eye-catching returns. But there is more than just the return. One must measure the beta, standard deviation, and alpha before investing. And secondly, reviewing a fund’s performance is necessary to optimise its performance.