Which are the Best SIP Mutual Funds for Long-term Investment?

Systematic investment plans (SIPs) have emerged as one of the most popular methods to invest in mutual funds. According to AMFI, Indian mutual funds have nearly 6.81 crore SIP accounts through which investors invest in various funds. Read on to learn the SIP meaning and the best SIP for long-term investment in mutual funds.

What is SIP Investment?

A Systematic Investment Plan (SIP) is an investment strategy that allows individuals to invest a certain amount of money at predefined intervals, monthly or quarterly, into a mutual fund of their choice. This method is particularly suitable for those wishing to enter the investing world without making a large lump-sum investment. Instead, investors contribute smaller, manageable amounts at regular intervals.

Factors to Consider Before Opting for the Best Mutual Fund for Long-term SIP

Selecting the best mutual fund for a long-term Systematic Investment Plan (SIP) requires careful consideration of several factors to align with your financial goals, risk tolerance, and investment horizon. Here are the key factors you should evaluate:

1. Investment Goal and Horizon: Clearly define your investment objective, whether it's wealth creation, retirement planning, education funding, etc. Your investment horizon, or the length of time you intend to stay invested, will influence the choice of funds.

2. Risk Tolerance: Assess your risk appetite. Different types of mutual funds carry varying levels of risk. Equity funds tend to be riskier but offer higher potential returns, while debt funds are generally less risky but offer lower returns.

3. Historical Performance: While past performance is no indication of future results, it can provide insights into how the fund has performed across different market conditions. Look for consistent, above-average performance over multiple market cycles.

4. Fund Manager: The fund manager's expertise and track record are crucial. Research their experience, investment approach, and the funds they manage. Consistency in outperforming benchmarks is a positive sign.

5. Expense Ratio: This is the fee you need to pay to the mutual fund company to manage your investment. A lower expense ratio is preferable.

Best SIP for Long-term

Now that you know SIP meaning and the factors you need to consider, let’s look at the best SIP in mutual funds for the long term. In our calculation, we have made certain assumptions. These include:

1. Fund category: All equity funds as they have the potential to offer inflation-beating returns in the long run.

2. Type of fund: We have chosen open-ended funds, as you can redeem them anytime you want to. Also, we have considered direct plans as their expense ratio is less compared to regular plans.

3. SIP Returns Considered: We have considered 5-year SIP returns in our calculation.

4. Source and Date: Value Research as of 30th August 2023.

Based on the above assumptions, here are the best mutual funds for long-term SIP

• Quant Small Cap Fund: The 5-year SIP return of this fund stands at a staggering 41.73%. The fund exhibits a noteworthy capacity to consistently generate returns that surpass those achieved by most funds within its designated category. Over various market cycles and economic conditions, this scheme has demonstrated a commendable ability to yield notably higher returns than its peers operating in the same investment category.

The fund primarily allocates its funds to sectors such as Financial, Services, Metals & Mining, Healthcare, and Energy. However, its allocation to Financial and Services sectors is relatively lower than other funds within the same category.

• Nippon India Small Cap Fund: The 5-year SIP returns of Nippon India Small Cap Fund stands at 34.53%. The scheme exhibits a remarkable capacity to consistently generate returns that surpass those of the majority of funds within its respective category. This exceptional ability to provide consistent returns over time makes it an outstanding choice for investors seeking stability and growth in their investment portfolio.

A substantial portion of the fund's assets is allocated to sectors such as Capital Goods, Financial Services, Chemicals, and Consumer Staples. However, the fund has deliberately maintained a lower allocation in the Capital Goods and Financial sectors than its counterparts within the same category.

• Quant Infrastructure Fund: The 5-year SIP return from this fund stands at 32.39%. The primary objective of this fund is to allocate a significant portion of its investment capital towards equity and equity-related instruments, focusing specifically on companies operating within the infrastructure sector.

This fund exhibits a notable capacity to generate returns surpassing most funds within its designated category consistently. Its proficiency in consistently delivering favorable returns sets it apart from its peers. However, it's important to note that its capability to mitigate losses during market downturns is somewhat less impressive than the average performance observed in similar funds.

• HSBC Small Cap Fund: The 5-year SIP return from this fund stands at 30.64%. This fund can consistently generate returns over time, a quality that aligns with the performance trends commonly observed among funds within its designated category.

This noteworthy trait underscores the fund's ability to navigate various market conditions and deliver returns that are reliable and in harmony with the broader performance patterns of similar funds in the same category. This consistency in performance speaks to the fund's adeptness in managing investment resources effectively, allowing it to potentially provide investors with a dependable source of returns over the long term.

In Conclusion

Long-term Systematic Investment Plans (SIPs) prove most effective when initiated at an opportune moment, coupled with a commitment to consistent contributions over time. The success of these plans hinges on maintaining a steady investment rhythm while remaining impervious to the market's inevitable fluctuations.