Top 10 Mutual Funds for SIP to Invest in 2022: A mutual fund is a professionally managed investment fund that pools money from multiple investors for the purchase of securities. The term is more commonly used in the United States, Canada and India, while similar structures around the world include SICAV in Europe and open-ended investment companies in the UK. In other words, a mutual fund is a pool of funds managed by a professional fund manager. It is a trust that collects money from multiple investors who share a common investment objective and invests it in equities, bonds, money market instruments and/or other securities.
म्यूचुअल फंड एक पेशेवर रूप से प्रबंधित निवेश फंड है जो प्रतिभूतियों की खरीद के लिए कई निवेशकों से पैसा जमा करता है। यह शब्द आमतौर पर संयुक्त राज्य अमेरिका, कनाडा और भारत में उपयोग किया जाता है, जबकि दुनिया भर में इसी तरह की संरचनाओं में यूरोप में एसआईसीएवी और यूके में ओपन-एंडेड निवेश कंपनियां शामिल हैं। दूसरे शब्दों में, एक म्यूचुअल फंड एक पेशेवर फंड मैनेजर द्वारा प्रबंधित फंडों का एक पूल है। यह एक ट्रस्ट है जो कई निवेशकों से धन एकत्र करता है जो एक सामान्य निवेश उद्देश्य साझा करते हैं और इसे इक्विटी, बॉन्ड, मनी मार्केट इंस्ट्रूमेंट्स और/या अन्य प्रतिभूतियों में निवेश करते हैं।
What is SIP?
A Systematic Investment Plan (SIP), better known as a SIP, is a convenient way to invest in mutual funds. Using SIP, you can invest a fixed amount – as little as Rs. 100 in a mutual fund scheme at regular intervals. You can decide how much you want to invest regularly – it could be weekly, monthly, quarterly or even yearly.
To understand what SIP is more simple, you can compare it with EMI or Equated Monthly Installments that you pay on the loan. You take the EMI route as you cannot pay for the purchase in one go. So, you divide that amount into monthly payments and pay the amount. Likely, SIP is a monthly route to invest.
The main difference between SIP and EMI is that you have to pay the interest amount for the loan; Whereas, whereas through SIP you are investing and earning returns.
How does SIP work?
SIP is a very simple and flexible mode of investment. In a SIP, a fixed amount is debited from your savings or current bank on a monthly or quarterly basis and invested in your chosen mutual fund scheme. You are then allotted a certain number of units of that particular mutual fund based on the fund’s purchase price (or Net Asset Value, NAV) on that particular date.
Why invest through SIP?
The most important benefits of investing through the SIP route are:
You can start a SIP with a small amount
: You can start a SIP with an amount as low as Rs 100, which makes it an ideal way for your first investment. It also spreads the risk over time rather than investing it in a lump sum.
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The automatic investment brings discipline:
Once the SIP is set up, the amount is automatically deducted from your bank account and invested in mutual funds of your choice. This eliminates the manual intervention required for investment.
No need to time the market:
Since this is a regular automatic monthly investment, there is no need to time the market. The investment happens irrespective of the market condition and the money is invested in regular instalments and at varying prices which helps in reducing the cost. So there is no need to panic about the volatility of the market.
SIPs have total flexibility:
SIPs offer complete flexibility on investment amount, monthly and quarterly investment options and investment tenure. Also, you can skip an instalment and cancel or modify your SIP whenever you want. So there is no lock-in period for the SIP route of investment.
Expert Tip: Only tax-saving mutual funds have a lock-in period of 3 years, other MFs do not.
SIPs offer the benefit of rupee cost averaging:
When you invest a fixed amount in mutual funds every month through SIP, you keep investing irrespective of the market condition. This ensures that when the market falls, you get to buy more units with the same amount of investment. Of course, when prices go up, the same amount will buy fewer units. This is called rupee cost averaging. So it helps to spot volatility in the market as it smooths out the volatility.
The averaging effect works better when considered over an extended period because bear and bull positions (positive and negative market conditions) can last for long periods—even years, at times.
Expert Tip: Rupee cost averaging is more likely to work in the long term. Hence, you need to continue your SIPs for a longer period to get maximum benefits.
SIP helps to build a small amount of wealth:
A systematic Investment Plan (SIP) helps you to invest a fixed amount every month which increases through the performance of the market. So this is where the power of compounding comes in handy! It refers to the process of ‘reinvestment of returns’ at the same rate to increase the principal amount year after year.
Simply put, it’s Return on Return + Principal or ‘Earnings on Income’.
So, the money invested works harder to grow your investment corpus and help you meet your financial goal.
Expert Tip: Compounding works faster over time. Hence, the longer you stay invested, the better returns you will get with the power of compounding.
List of Top 10 Mutual Funds for SIP to Invest in 2022
- Axis Bluechip Fund
- Mirae Asset Large Cap Fund
- Parag Parikh Long Term Equity Fund
- UTI Flexi Cap Fund
- Axis Midcap Fund
- Kotak Emerging Equity Fund
- Axis Small Cap Fund
- SBI Small Cap Fund
- SBI Equity Hybrid Fund
- Mirae Asset Hybrid Equity Fund
Tax implications of SIP
There is no doubt that SIP is the best way to invest in mutual funds, but it is also important to know the tax implications before making your first investment. However, the tax implications of different types of mutual fund schemes are different.
Although all gains from mutual fund investments are classified as capital gains, the sub-categorization into short-term capital gains and long-term capital gains is based on the type of fund and the duration of the investment.
So if the equity fund units are held for a period exceeding 12 months, the profit generated is treated as Long Term Capital Gain (LTCG) for taxation. If the holding period is less than 12 months, the gains are treated as short-term capital gains.
For debt funds, units need to be held for a tenure of more than 36 months to qualify for LTCG taxation. Otherwise, the units qualify for Short-Term Capital Gains (STCG) taxation.
- Taxation of Equity-Oriented Mutual Funds:
- Long-Term Capital Gains (LTCG) up to Rs 1 lakh tax-free in every financial year
- Long-term capital gains exceeding Rs 1 lakh per annum are taxed at the same rate of 10%
- Short-term capital gains are taxed at 15%
- Taxation of Debt Mutual Funds:
- Long Term Capital Gains (LTCG) with indexation benefits are taxed at 20%
- Short-term capital gains are taxed as per the tax slab of the investor
SIP investment based on you
You can easily opt for an online SIP, and the investment process is easy. The hard part is choosing the right mutual fund to invest in through SIP. so first, you need to assess yourself as an investor. If you are conservative and don’t want to be risky, you can opt for a hybrid fund or large-cap equity SIP. Conversely, if you are aggressively risk-averse, you can choose Flexi large-cap funds, and in most equity markets. If you fall under the category of “neither here nor there” (moderate risk), you can opt for a hybrid fund or a large-cap equity fund with a conservative hybrid fund.
The Best SIPs in 2022
To invest in a SIP, you do not have to open a Demat account, even though your mutual fund through a SIP may invest in equity. Hence, any asset management company can be the source of your Systematic Investment Plans and due to advancements in technology, Demat accounts are not required. Anyway, here are the best SIPs to consider in 2022:
- For Risk-Averse Investors
- Axis Bluechip Fund – Direct Plan-Growth (Large-cap Equity)
- ICICI Prudential Regular Savings – Direct Plan-Growth (Hybrid)
- Quant Infrastructure Fund (Equity)
- HDFC Credit Debt Risk Debt Fund – Direct-Growth
- For Moderately Risky Investors
- Mirae Asset Large-Cap Fund
- Robeco Bluechip Equity Fund – Direct-Growth Plan
- Quant Absolute Fund Direct-Growth
- Baroda BNP Paribas Hybrid Fund
- For Risk Takers
- BOI AXA Small Cap Fund Direct-Growth
- Quant Tax Plan Direct-Growth
- Mirae Asset Tax Saver Fund
- Kotak Bluechip Fund
- Axis Bluechip Fund
FAQs on Top 10 Mutual Funds for SIP to Invest in 2022
What is the purpose of mutual funds?
Mutual funds let you pool your money to “mutually” buy stocks, bonds, and other investments with other investors. They are run by professional money managers who decide which securities to buy (stocks, bonds, etc.) and when to sell them. So you get exposure to all investments made in the fund and any income generated from them.
Are mutual funds safe?
Mutual funds are largely a safe investment, which is considered a good way for investors to diversify with minimal risk. But there are situations in which mutual funds are not a good option for market participants, especially when it comes to fees.
Can I sell mutual funds at any time?
You are allowed to sell your mutual fund holdings at any time after purchasing the shares. But there can be consequences depending on the type of mutual fund you own. For example, some fund companies charge early redemption fees for selling their shares before a specified period.
Is SIP Tax-Free?
SIP can be the best tax-saving instrument with a high return on your investment. So you can claim a deduction of up to Rs. 1.5 lakh from your taxable income for investing in ELSS through SIP under section 80(c) of the Income Tax Act, 1961.