Which Is The Best Sip - If you are a long time follower of my blog, you know that every year I publish my top 10 SIP mutual funds to invest in India. As usual, I am posting my Top 10 SIP Mutual Funds for India in 2022.
Note:- See my Debt Mutual Fund Recommendation for 2022 under "Top 10 Best Mutual Funds to Invest in India in 2022".
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First off, I'm really sorry for getting this post up so late. Many of my readers expected a lot. However, due to the hustle and bustle of the financial planning service, I could not publish normally, such as in December or January.
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Let me tell you what I recommended last year (Top 10 SIP Funds to invest in India in 2021).
If you remember, almost two years ago, I stayed away from active fund recommendations and adopted passive funds (index funds) and the reasons are as follows:-
When you introduce index investing, you stop the search for BEST INVESTMENT FUND COMPANY and BEST FUND SYSTEM. Investing in an index fund and waiting for the return of the index is the simplest way to invest. The only risk you cannot avoid is market risk, which you need to manage with appropriate asset allocation between debt and equity (I mean at the portfolio level).
As you may know, many AMCs are now launching a lot of index funds. Because they are trying to follow the trend. Some launched with the idea of low cost and some caused problems by launching smart beta money. However, in my opinion owning the entire market (especially the Nifty 100) is a better option than these various smart beta index funds. I know they can reduce volatility. However, it comes with a refund. Hence owning Nifty 100 is better for simplicity. It brings to mind a quote from John Bogle.
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"The formula for investing success is to own the entire stock market through an index fund and then don't do it. Just stay the course."
Owning index funds is a good thing. However, following this strategy requires a lot of patience. As you may know, we are bombarded with information day in and day out (I call it NOISE) and obviously active funds can be few and far between and currently beat the index. During this time, you start to have doubts about your index investing strategy.
Buying funds based solely on past performance is one of the dumbest things an investor can do.
". Most of the purchases of new mutual funds are based on past performance. We hope that past performance will repeat itself. However, the fund managers themselves are not sure whether they will repeat the same past performance. But , we investors are forced to believe that it will repeat itself.
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"If I had to summarize my opinion on investing, it is this: Every investor should choose the strategy that has the highest probability of achieving their goals. And I believe that for most investors, the average dollar cost of a low cost index fund offers the greatest chance for long-term success - Morgan Housel, The Psychology of Money (Timeless Lessons on Wealth, Greed and Happiness).
That's why we all know that some fund managers can beat the index. However, finding these rare species that can beat the index is the biggest task and in fact an impossible task.
The costs you pay are fixed. However, returns are not fixed. If a fund manager claims that his fund beats the index, you need to check what the actual return is after expenses and how often it can generate returns.
When you decide to invest in index funds, you just need to focus on three aspects of the funds and they are below.
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# Error Tracking: -It has nothing but how much the money deviates from the relative return of the index it is against. A smaller tracking error means a better fund return. Some fund houses do not publish this information regularly. Therefore, you need to be careful with this information.
If you meet these criteria, the NFO index is also not considered. Once they have decent AUM and historical fin errors, you can consider them.
Before you start investing, you need to have an understanding of the basics of investing. I repeat this exercise every year in my blog post. But still, get the same kind of questions from readers. That's why I'm writing one more time for clarity.
In my opinion, one must be aware of the assets prepared to face financial emergencies before committing to an investment. Financial emergencies such as loss of life, accident, hospitalization or sudden loss of income or employment.
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Therefore, the first step is to cover yourself with appropriate life insurance (term life insurance, where the coverage must be at least 15-20 times your annual income). You must have your own health insurance (rather than relying on employer-provided health insurance). Create better coverage with a family floater plan and Super Top Up health insurance. Ideally around 3-5 lakhs for a family floater plan and around 10-25 lakhs Super Top Up is a must these days. Buy accident insurance for about 15-20 times your monthly salary. Then, finally, create an emergency fund that has at least 6-24 months of your monthly commitment. This is useful whenever the income stops or if you are facing unplanned expenses.
Once these basics are done, consider investing. If your basics are not done right, the investment building you have created can collapse at any time. Let's go ahead and understand the basics of investing.
I have found that many investors simply invest in mutual funds just because they have extra money. Another reason may be that someone is directing that mutual funds are better in the long term as compared to FD, PPF, RD or even LIC bank mutual fund products.
If you have clarity such as why you are investing, when you need money and how much money you need at this time, you will have better clarity in choosing a product. Therefore, first determine your financial goals.
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You need to know the actual cost of this goal. In addition, you also need to know the inflation rate associated with this goal. Remember that every financial goal has its own inflation. For example, the inflation of your child's education or marriage expenses is different from the inflation of household expenses.
By identifying the current costs, time horizon, and inflation rate of this goal, you can easily figure out the cost of the next goal. The future cost of this goal is your goal amount.
I wrote a separate post on how to set your financial goals. Read the same under "Financial Goals - How to set before you start investing?"
The next step is to identify the proper allocation. Whether it's a short-term or long-term goal, proper asset allocation between debt and equity is essential. I personally recommend the asset allocation strategy shared below. Remember that it can vary from person to person. However, the basic idea of asset allocation is to protect your money and keep it well-navigated to achieve your financial goals.
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If the goal is less than 5 years - Do not touch the stock product. Use debt products of your choice like FDs, RDs, Liquid Funds, Money Market Funds or Ultra Short Term Fund.
When choosing a debt product, make sure that the maturity of the product must match your financial goals. For example, PPF is the best debt product. However, it must meet your financial goals. If the PPF maturity is 13 years and your target is 10 years, you will not achieve your financial goals.
First fill the debt allowance with EPF, PPF or SSY (depending on maturity and type of target). If you still have room to invest in debt, choose debt funds. Personally, my choice is always to fill these wonderful debt products like EPF, PPF and SSY.
The next and biggest step is expected returns for each asset class. You can expect a return of around 10-12 percent from the share. As for debt, you can expect a return of around 6-7 percent.
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When your expectations are defined, you are less likely to deviate or take knee-jerk reactions to volatility.
Once you understand how much return you expect from each asset class, the next step is to identify your portfolio's return expectations.
Let's say you put a debt: equity allocation of 40:60. The expected return on debt is 6% and 10% on equity, in this case the total expected return on the portfolio is as below.
Once the objectives have been defined and the target amount, the asset allocation has been made, the expected return for each asset class has been defined, then the last step is to identify the amount to invest each month.
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There are two ways to do it. One is a continuous monthly investment throughout the target period. Another way is
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