How to select the right schemes for multiple SIPs (2024)

SIPs encourage disciplined investing. Many investors wish to start multiple SIPs across different schemes to build a diversified portfolio. However, choosing the right schemes becomes important to optimise the return potential while managing risks effectively. This article provides some guidelines on how to select the right schemes for multiple SIP investments.

• Table of contents

1. 6 tips to choose suitable schemes for SIPs
2. Diversify across asset classes
3. Factor in your risk appetite
4. Consider your investment goal and timeline
5. Assess the track record of the scheme
6. Analyse the scheme portfolio and strategy
7. Rebalancing and reviewing your portfolio periodically

6 tips to choose suitable schemes for SIPs

Here are 6 factors to consider before starting your SIP investments. With these tips, you can embark on your investment journey with focus, planning and clarity.

Diversify Across Asset Classes

While equities give relatively higher returns over the long run, their prices also fluctuate more than other asset classes like debt. Therefore, it is advisable to diversify your SIP investments across different asset classes like equity, debt, gold, etc., to manage risks effectively. A typical diversified portfolio could have 60% invested in equities, 30% in debt schemes, and 10% in gold funds. This limits your downside risk if one asset class performs poorly. Additionally, you can target large cap, mid cap, and small cap equity funds to get equity diversification. Similarly, choose between short term, medium term, and long term debt funds.

Factor in Your Risk Appetite

Another important factor while choosing schemes is your individual risk appetite and ability to bear losses in the short term. If you cannot tolerate high volatility, then schemes like large cap funds—which are relatively less risky—are preferable over mid and small cap schemes. You can also include relatively stable debt funds as part of your portfolio. Those willing to take higher risks can explore mid and small cap funds for a better long-term return potential. Consider your life stage and financial situation before taking on excessive risks through your SIP investments.

Consider Your Investment Goal and Timeline

Be clear about your investment goal and the timeframe. Are you investing for short-term goals like a child's education which is 3-5 years away or long-term goals like retirement which is 15-20 years away? Your timeline will determine the kind of schemes you should target. Short-term goals can be served through debt funds while equities are more suitable for long-term goals, given their relatively better returns over longer periods. Understanding your goal will help shortlist schemes aligned with your requirements.

Assess the Track Record of the Scheme

Past performance is not necessarily a guarantee for future returns. However, looking at the track record provides useful insights into how a scheme has fared compared to its peers and category average under different market conditions. You may want to shortlist schemes that have consistently delivered above-average returns with lower risks compared to others in their category under different market cycles. This improves the chances of selecting a potentially successful scheme.

Analyse the Scheme Portfolio and Strategy

Analyse the portfolio composition, investment strategy, and process followed by the fund manager to understand how the scheme is investing. Is the fund following a focused or diversified strategy? What is the weightage given to particular sectors? Looking at the portfolio helps assess if the strategy aligns with your risk profile and preferences. For example, large cap funds normally invest in large established companies while mid cap funds target mid-sized firms with higher growth potential but more risks as well. Understanding the scheme helps decide its suitability.

Rebalance and Review Your Portfolio Periodically

Conclusion

Building a diversified portfolio through multiple long-term SIPs is a prudent approach to growing wealth. Selecting suitable schemes aligned with your risk tolerance, goals, and time horizon while keeping costs low is important for optimising the return potential. Understanding the strategies, investing style and past performance of shortlisted schemes provides useful inputs for making informed investment choices.

FAQs

How many different schemes should I invest in via SIP?

It is generally recommended to have a minimum of 3-5 different schemes in your SIP portfolio to achieve good diversification. You can have 3-4 equity funds from different categories like large cap, mid-cap, and small cap along with 1-2 debt funds based on your risk profile and investment goal.

How often should I review my SIP portfolio?

You should review your SIP portfolio at least once every year to check if your asset allocation across different funds has changed significantly due to market movements.

Can I have multiple SIPs for the same mutual fund company?

There is no limit to the number of schemes you can invest in, even within a single company. So, you can start SIPs for as many or as few schemes as you wish.

What are the disadvantages of SIP investment?

Systematic Investment Plans (SIPs) may not suit every investor. Here are some drawbacks of SIPs:

• Potential for lower returns than lumpsum: If a lumpsum investment is timed right, it may offer higher return potential as the entire investment gets market exposure from the start. So, if an investment is made just before markets start to rise, a lumpsum investment may have better return potential.
• Limited control: Since regular SIPs follow a fixed investment schedule, investors may not be able to capitalise on brief market trends or time the market.
• Discipline and commitment: SIPs require regular investments, which may not suit investors seeking flexibility. They may also not be suitable for those with irregular income, as maintaining consistent contributions could become challenging.

Can I make payment for multiple mutual fund SIPs together?

Once you set up a one-time mandate with the Asset Management Company whose scheme you are investing in, you can operate multiple SIPs. However, the collective investment amount should not exceed the mandate limit. For each scheme, you may have different SIP amounts or schedules.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
This document should not be treated as endorsem*nt of the views/opinions or as investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.