What are Best SIP Mutual Funds in India & How to Invest: Meaning & Returns

Best Mutual Fund SIP Plan

A mutual fund SIP plan (Systematic Investment Plan) is a mode of investing in mutual funds, where an investor can invest a fixed amount of money at regular intervals, usually monthly or quarterly, in a mutual fund scheme. The SIP mutual fund plan amount is automatically debited from the investor's bank account on a specified date every month and is invested in the selected mutual fund scheme.

The investment amount is divided into units based on the prevailing Net Asset Value (NAV) of the mutual fund scheme. As a result, the investor buys more units when the market is down and fewer units when the market is up, which helps in averaging the cost of investments over time.

The best SIP plan is a convenient and disciplined way of investing in mutual funds, as they allow investors to invest small amounts regularly and benefit from the power of compounding over the long term. They also help in reducing the impact of market volatility on investments, as the investments are spread over a period of time.

Factors that Influence SIP Mutual Fund Plans 

Following are some of the factors that influence the performance of the Best Mutual Funds for SIP 2023:

Investing in mutual funds through a SIP mutual fund plan can be an excellent way to grow your wealth over time. However, before investing in any mutual fund scheme, it is essential to consider the following factors:

• Investment Objective: Determine your financial goals and investment objectives before selecting a mutual fund scheme. Based on your financial goals, choose the appropriate mutual fund scheme that aligns with your investment objective.
• Fund Category: Mutual fund schemes are classified into various categories based on their investment objective and asset allocation. Understand the different categories of mutual funds and choose the one that aligns with your investment goals.
• Fund Performance: Analyse the past performance of the mutual fund scheme you are considering. Look for consistent and long-term performance of the scheme. However, past performance does not guarantee future returns.
• Fund Manager: A fund manager's expertise and experience play a crucial role in the performance of the mutual fund scheme. Therefore, it is essential to research the fund manager's experience, track record, and investment philosophy.
• Expense Ratio: The expense ratio is the annual fee charged by the mutual fund company for managing your investments. Look for mutual fund schemes with a lower expense ratio as it can significantly impact your overall returns.
• Investment Horizon: Determine your investment horizon before investing in any mutual fund scheme. Choose a scheme that aligns with your investment horizon to achieve your financial goals.
• Risk Profile: Mutual fund schemes come with varying levels of risk. Examine your risk tolerance and choose a mutual fund scheme that aligns with your risk profile.
• Diversification: Diversification is a key factor in reducing the risk in your investment portfolio. Choose a mutual fund scheme that offers diversification across different asset classes, sectors, and market caps.
• Exit Load: Exit load is the fee charged by the mutual fund company for redeeming your investments before the designated period. Evaluate the exit load charges of the mutual fund scheme you are considering before investing.
• Taxation: Mutual fund investments are subject to various tax implications. Scrutinise the tax implications of the mutual fund scheme you are considering to ensure it aligns with your tax planning goals.

By considering these factors, you can choose the best mutual fund scheme for SIP plan that aligns with your investment objectives, risk profile, and financial goals.

How does SIP work?

SIP or Systematic Investment Plan, is an investment method where an individual invests a fixed amount of money regularly in a mutual fund scheme. The frequency of investment can be weekly, monthly, quarterly, or any other chosen interval. A SIP mutual fund plan works in the following way:

1. Fixed Investment Amount: The investor chooses the amount they want to invest in the mutual fund scheme. The investment amount can be as low as Rs. 500 per month.
2. Duration of Investment: The investor chooses the duration for which they want to invest in the scheme. The Best SIP plan can be started for a minimum of 6 months to 10 years or more, depending on the mutual fund scheme.
3. Allotment of Units: Based on the current Net Asset Value (NAV) of the mutual fund scheme, units are allotted to the investor. The number of units allotted depends on the investment amount and the current NAV of the scheme.
4. Compounding Benefits: The returns on the SIP plan are compounded over time. The investor benefits from the power of compounding as the investment is made regularly, and the returns are reinvested.
5. Flexibility: Mutual fund SIP plan offer flexibility to the investor to change the investment amount, frequency of investment, or the mutual fund scheme, based on their investment goals or financial situation.

Best SIP Mutual Funds India 2023

EQUITY FUND PLANS

• Quant Tax Plan Direct-Growth
• Quant Infrastructure Fund Direct-Growth
• BOI AXA Small Cap Fund Direct-Growth

DEBT FUND PLANS

• Edelweiss Government Securities Fund Direct-Growth
• HDFC Credit Debt Risk Debt Fund Direct-Growth
• ICICI Prudential All Seasons Bond Fund Direct-Plan-Growth

HYBRID FUND PLANS

• Quant Multi Asset Fund Direct-Growth
• Quant Absolute Fund Direct-Growth
• Baroda BPN Paribas Aggressive Hybrid Fund Direct-Growth

Tax Implications of SIPs

Systematic Investment Plans (SIPs) have certain tax implications that investors need to be aware of. Here are the tax implications of investing in a mutual fund SIP plan:

Tax on capital gains

The capital gains tax is applicable on the returns earned from the sip mutual fund plan. The capital gains tax is of two types - short-term capital gains tax (STCG) and long-term capital gains tax (LTCG).

For equity mutual funds, if the holding period is less than one year, the short-term capital gains tax is levied at 15%. However, for a holding period of more than one year, the long-term capital gains tax is levied at 10% for gains over Rs 1 lakh.

For debt mutual funds, if the holding period is less than three years, the short-term capital gains tax is levied according to the investor's income tax slab. However, for a holding period of more than three years, the long-term capital gains tax is levied at 20% with indexation.

Dividend Distribution Tax (DDT)

If an investor opts for the dividend option in SIPs, then the mutual fund company pays dividend distribution tax (DDT) before distributing the dividends to the investors. The DDT rate for equity mutual funds is 11.648% (including surcharge and cess) and for debt mutual funds is 29.12% (including surcharge and cess).

Tax benefits under Section 80C 

Investments in some mutual fund schemes, such as Equity Linked Savings Scheme (ELSS), offer tax benefits under Section 80C of the Income Tax Act. An investor is able to claim a deduction of up to Rs. 1.5 lakhs out of their total taxable income.

GST 

Goods and Services Tax (GST) is applicable on the fund management fees and other expenses charged by the mutual fund company. The GST rate is 18%.

TDS

If an investor withdraws the investment before the completion of the holding period, then the mutual fund company deducts Tax Deducted at Source (TDS) on the capital gains earned. The TDS rate is 10% for equity mutual funds and 20% for debt mutual funds.

It is important for investors to understand the tax implications of a Mutual fund sip plan before investing, to make informed investment decisions. It is advisable to consult a tax professional for personalized advice on the tax implications of SIPs based on a specific financial situation.

Disclaimer

The investment options and stocks mentioned here are not recommendations. Please go through your own due diligence and conduct thorough research before investing. Investment in the securities market is subject to market risks. Please read the Risk Disclosure documents carefully before investing. Past performance of instruments/securities does not indicate their future performance. Due to the price fluctuation risk and the market risk, there is no guarantee that your personal investment objectives will be achieved.