Why mutual fund distributors are betting big on SIPs

 Mutual fund distributors and independent financial advisors (IFAs) are betting big on systematic investment plans (SIPs) and promoting the tool to build a sustainable business model.

Systematic investment plans, or SIPs, are gaining popularity .A slew of advisors have realised that SIPs are a good way to grow business. The monthly investments through SIP route in equity mutual funds rose by about 35 percent in value terms so far in this financial year.

One of the best ways to build wealth over time is to invest in equity mutual fund schemes through the systematic investment plan (SIP) route. The SIP is a plan where investors make regular and equal payments into a mutual fund, trading account or retirement account, and benefit from the long-term advantages of rupee-cost averaging (RCA).This is one of the most convenient ways to save regularly without taking any action except the initial set up of the SIP.

There are hundreds of equity mutual funds in the market, but an investor should choose funds according to his risk profile. Generally, the mutual funds with higher asset under management (AUM) have low expense ratio. Diversified equity mutual funds, which have AUM lower than Rs 1,000 crore, have higher expense ratio than those which have AUM higher than Rs 1,000 crore.

Like most investors, you too seem concerned about your returns. First, you need to understand that a scheme can be analysed for various aspects using particular type of return. For looking at the year-on-year performance, CAGR may be a suitable parameter.

Apart from the analytics part, you need to work on your emotional facet. Investing is all about employing your surpluses in favourable avenues and watching your wealth blossom over time.

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