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Best SIP Plans in 2022: Invest in The High Yielding Mutual Fund Plans in India

When it comes to making mutual fund investments, a disciplined and wise financial approach goes a long way. It also helps investors inculcate a positive attitude towards investment, and a SIP can help you achieve that. This article will take through all the details of SIP and some of the best SIP mutual fund plans you can invest in, in 2022.

SIP or a Systematic investment plan is one of the two ways to invest in mutual funds, with the other being lump sum. With SIP, investors can invest small amounts in a fund over a fixed period, especially equity-related funds. The payment frequency can be weekly, monthly, and quarterly. SIP offers you the benefits of the rupee cost averaging and compounding process hence ensuring better returns on maturity.

Best SIP plans to invest in 2022

Some of the well-known SIP plans in India and the returns are shown below:

Scheme Name
Direct plan - Growth option
Minimum SIP(Rupees)AUM(Rs. crores)1 year(Absolute return)3 years(CAGR)5 years(CAGR)
Quant small-cap fund10001,664.2114.99%36.95%36.95%
ICICI Pru Technology Fund 1008,742.3113.99%33.52%27.58%
Quant Tax Plan10001,166.1715.69%32.12%22.51%
Aditya Birla SL Digital India Fund1003,398.38.24%31.04%26.82%
PGIM India Midcap Opportunities Fund10004,887.3214.29%30.49%17.75%
Tata Digital India Fund10005,893.7712.48%30.37%29.18%

Who should invest in SIP mutual funds?

SIPs are the safest, most efficient, and best choice for mutual fund investment. It's hassle-free and flexible, allowing the investors to choose a predetermined sum of money and frequency of their investment as weekly, monthly, quarterly, bi-annually, or annually. SIPs help investors grow money through compounding interest, ensuring higher returns on maturity. 

So anyone looking to accomplish their financial goals can choose SIP plans. These plans are especially suitable for beginners and individuals who are not well versed with financial markets and related instruments. Salaried individuals often prefer SIP plans over lump sum as it allows them to decrease or increase the amount of investment as per their needs. They can easily initiate or discontinue their SIPs as per their wish and needs. 

Taxation of gains from Mutual funds when invested through SIP  

SIP plans for equity and debt mutual funds are subject to taxation. The taxation levied on the redemption of purchased units through SIP can sometimes be complicated for novice investors. To make you more informed about your SIP investments and returns, let's understand the taxation process through an example. 

Suppose you have purchased a certain number of units of an equity mutual fund over one year through SIP instalments. Now you want to redeem your entire investment after 15 months. Since the units first purchased through the SIP are held for the long-term (over one year), the gains made from these units will be considered long-term capital gains. If these long-term capital gains are less than Rs 1 lakh, there will be no taxation on gains. If the gains are more than one lakh, they will get taxed at 10%.

However, in case of short-term capital gains on the units purchased through the SIPs are eligible for taxation from the second month itself. These short-term capital gains get taxed at 15%. You may also have to pay the surcharge on it.

When considering debt funds, the long-term gains made from the holding of 3+ years get taxed at 20%, along with indexation. The minimum holding period of debt funds is three years. If you redeem your units before three years, the gains will be considered short-term capital gains. These gains will get taxed under a 30% rate with a surcharge.

Risk Associated with SIP Plans

Every mutual fund comes with associated risks, and SIPs are no different. It's important to be aware of various risks associated with SIPs to make a well-informed decision as an investor.

  1. Liquidity risk: Liquidity risk delays returns from investments. It occurs in such a situation when the sale unit volume is higher than the security buyers in the market. As a result, investors find it difficult to redeem their money. Another reason can be the lock-in period. Some fund schemes come with a fixed lock-in period which doesn't allow the investor to sell the MF units even in the low-performing markets, and money gets stuck until the tenure.
  2. Credit risk: The investor's fund portfolio may also face credit risk. When a credit rating downgrades security, its value decreases in the market, affecting the investor's portfolio.
  3. Depreciation risk: It's when a fund scheme fails to provide the expected results. The investment can depreciate if the fund schemes invest in underperforming securities, and thus investors lose their money. Hence it's important to assess the fund performance and do a SIP return calculation beforehand.
  4. Market-related risks: While the chances of earning profits from SIPs over a long period are high, the constantly changing market changes and price volatility can affect its Net asset value (NAV). A sharp rise in the market can lead to profits, but a fall takes you to the losses.

Technology-related risk: Since all the translations take place electronically these days, there may be cases of transaction failure risk, which can cause stressful situations and sometimes loss of funds.

Return potential of SIP plans

The rupee cost averaging and compounding process makes SIP the best choice to generate high returns. Investors receive interest on interest from their investment in mutual funds for a long period. Besides, SIPs are immune to market movement and volatility and thus work well at both high and low levels. Investors benefit from market downturns as they can buy more units at a lower price. It is a perfect option for new investors who want to generate consistent cash flow.

If you want to generate maximum benefits out of SIPs, make sure you are:

  • Aware of your future financial goals.
  • Clear about the amount of savings you need to achieve your goals.
  • Well acquainted with the SIP you are planning to invest in
  • Done with all your documentation and KYC, so you enjoy a non-interrupted investment process and results.
  • Choosing the SIP according to your future financial goals
  • Investing small amounts in multiple shares and diversifying your portfolio rather than focusing on just one.

Mutual funds compounding effect concerning the time 

A systematic Investment Plan (SIP) employs the compounding effect while investing small amounts at predetermined intervals to generate high returns. Suppose you start a monthly SIP of Rs 3000 for 30 years at an interest rate of 10% to create a significant corpus for retirement. The returns earned by the end of the year will be Rs. 2,011. When this amount gets added to your initial principal of Rs. 36,000, the new principal becomes Rs. 38,011. Continuing so will generate a future value of Rs 6,19,656 lakhs at the end of 10 years and around 68,00,000 at the end of 30 years. Over the years, a SIP gives you substantial returns.

With mutual funds, you can receive the returns in two ways: dividends and capital gains. When you choose to reinvest your earnings in the same plan, you get the advantage of compounding. As you continue to reinvest your returns, your money grows exponentially over a period while you considerably minimize the risk.

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