Best SIP Mutual Funds in India to Invest in 2022

A Systematic Investment Plan, commonly referred to as SIP, is an investment method that people can use to invest in various mutual fund schemes. In SIP, one invests a fixed amount into their preferred mutual fund schemes at pre-decided and fixed intervals. This investment mode is an alternative to lump sum payments, where the investor pays the entire investment amount in one go.

This blog explains everything you need to know about SIPs and also lists some of the best mutual funds for SIP.

List of Top 10 Mutual Funds to Invest via SIPs 

The table below lists the top mutual fund schemes in India in 2022 to invest in via SIPs based on their five-year annualised returns: 

* As on November 11, 2022  

How Do SIPs for Mutual Funds Work?

Suppose you use the SIP mode to invest in a mutual fund scheme. You will need to issue a standing instruction allowing a fixed and predetermined sum of money to be debited from your bank account at regular intervals. It can be on a weekly, monthly, quarterly or yearly basis. Few mutual fund schemes also accept SIPs on a daily basis.

The debited amount gets invested in your selected mutual fund. A specific number of units of your chosen mutual fund scheme gets  allotted which depends on the Net Asset Value (NAV)  or purchase price of the fund on that day. 

Investing in mutual funds via SIP is similar to savings via recurring deposits. When you invest in a recurring deposit, you need to deposit a fixed amount of money every month for a fixed tenure.  

SIP is a hassle-free and convenient investment mode. You do not have to shell out a lump sum investment amount. Neither do you have to write a cheque every month. Just a standing instruction to your bank will do. 

Also Read: How to Stop Mutual Fund SIP? | SIP Cancellation Online

Types of SIPs

Listed below are the different types of Systematic Investment Plans:

• Fixed SIP

Here, investors choose and fix  the SIP amount. They  also set a date on which the amount gets invested into the scheme periodically. After they make the necessary selections, the rest of the process gets automated. 

Consistent and equal investment, irrespective of the market situation, enables investors to benefit from rupee cost averaging. Furthermore, investment via this SIP ensures a hassle-free process because the investor does not need to intervene regularly. 

• Perpetual SIP

These are fixed SIPs without a fixed tenure. Here, the investor can skip  filling up the start and end date of SIP to continue it indefinitely.

The fund house will deduct the amount automatically from the investor’s bank account until the investor instructs them  to discontinue. The benefit of perpetual SIP is that one does not have to renew repeatedly. People can continue investing as long as they wish to. Moreover, they can redeem their investment at their convenience. 

• Flexible SIP

Markets experience both bullish and bearish phases. Moreover, the income of an investor might vary from month to month. Flexible SIPs take all of these factors into consideration. It provides people with the benefit of skipping or changing the amount of their monthly contribution based on their cash flow. 

So, investors can alter the SIP amount to invest more during market downturns and less during market peaks. They can also vary the investment amount based on expenses, income, and market movements. 

• Top-up SIP 

This SIP facility enables investors to increase their SIP investments periodically. Therefore, it is an ideal SIP option if investors expect periodic increments in  their income increases. 

For example, an investor can set up a SIP for ₹5,000 in the first month and subsequently increase the amount by ₹1,000 every month. They  can also instruct the fund house to increase their investment amount by ₹ 2,500 every twelve months. 

• Trigger SIP 

Experienced investors can invest via trigger SIPs. In this option, SIPs get  triggered if the mutual fund scheme’s NAV attains a specified value. 

Furthermore, investors can trigger their SIPs depending on changes in popular benchmark indices like Sensex and Nifty. 

Also Read: Best International Mutual Funds in India to Invest in 2023

Benefits of investing via SIP 

Now, let us look at the reasons for investing in mutual funds via SIPs:

•  Inculcates financial discipline

The most prominent feature of SIP is its automated investments. The SIP amount gets  automatically deducted from the investor’s bank account at periodic intervals. It  helps instil  financial discipline into one’s life. Using SIPs will ensure that a person does not have to experience the hassles of manual intervention. 

•  Provides flexibility 

Investors can enjoy complete flexibility while investing in mutual funds  via SIP. For example, they can choose the amount and its periodicity – weekly, monthly, quarterly or annually. Additionally, investors can decide their investment tenure and modify the SIP. 

• Creation of wealth with small amounts

An investor can start investing via SIP with as little as ₹ 500. This method allows the investor to spread the risk and cost of investment over a long period. Moreover, the money invested  periodically increases with the market’s performance. It helps grow the investment corpus, allowing individuals to achieve their financial goals. 

• The benefit of rupee cost averaging 

Experts say  an investor must keep investing a fixed amount of money every month, irrespective of the market situation. As a result, if the market falls, the investor can buy more units at lower NAVs. However, investors would  buy fewer units at higher NAVs  if the market rises. In the long term, this reduces the average cost of your investments. This process is referred to as rupee cost averaging.

It is helpful when the markets rise and fall. However, this strategy works better during an extended investment horizon, as the bear and bull phases of the market can last for a long time.

• No need to time the market 

Investors do not have to time the market because SIP is an automated investment. Therefore, investing  at regular intervals continues irrespective of the market situation. Moreover, the money gets  invested at different market levels, which significantly helps in lowering costs. 

Also Read: Step-Up SIP: What Is It and How Does It Work?

Factors to consider while Investing via SIP in Mutual Funds 

Listed below are some of the crucial  things to consider before investing in the mutual fund via SIPs:

• Financial goals

A preferable way to formulate effective financial plans is to set critical  life goals that require a large sum  of money. For example, an investor may wish to have a fund for retirement, a child’s education, or buying a home. 

A  clear goal enables investors  to have clear objectives and track the alignment of their investments with it.  

• Investment horizon

When you have a clear financial goal, you also have  an idea of the time it would take to achieve it. A long-term horizon enables you to take more risks. However, if you wish to achieve your financial goals within a short period, you should opt for a short-term mutual fund with less risk. 

Taxation of SIPs 

A key  difference in the taxation of SIPs from lump sum investments is that, in the case of SIP, every single instalment is a new investment for taxation purposes. The holding period of each SIP is calculated from the date of each payment.

The taxation of SIPs mainly depends on the type of mutual funds  in which a person invests. Profits earned by investors after selling their mutual fund investments are deemed to be capital gains. These are  STCG (Short-Term Capital Gains) and LTCG (Long-Term Capital Gains). This categorisation depends on the holding period of the investment. 

If investors hold equity fund units for less than 12 months, it is considered STCG. But, if the holding period is 12 months or more, it is regarded as LTCG. If investors hold debt fund units for less than 36 months, it is STCG. If the holding period is 36 months or more, it is LTCG. 

Taxation of equity-oriented mutual funds

Important points regarding the taxation of equity mutual funds are as follows:

• The applicable LTCG tax is 10% if the long-term gains exceed ₹ 1 lakh per year
• LTCG is tax-free till ₹ 1 lakh every financial year 
• The STCG tax rate is 15%
• Health and education cess of 4% on capital gains tax is applicable 

Taxation of debt-oriented mutual funds 

Listed below are important points: 

• LTCG tax rate is  20% with indexation benefits
• STCG tax depends on the investor’s income tax slab rate.

Also Read: Best Banking Mutual Funds to Invest in 2022

Final Word

SIP stands for Systematic Investment Plan, and it is a convenient way to grow a large corpus by investing small sums regularly. There are many benefits of investing via SIPs, the foremost being the inculcation of financial discipline. This blog has listed some of the best mutual funds for SIP investment and other essential details you may need to learn. 

Frequently Asked Questions (FAQs)