Donald Thompson
For those looking to invest in mutual funds but finding it difficult to maintain discipline and sticking with regular investing, Systematic Investment Plans (SIPs) offer a solution. With SIPs, you can automate the investment process and avoid missing the opportunity to invest in the stock market at the right time. Also, there are different types of SIPs available to suit financial goals and risk appetite of different investors.
Let’s go through 5 most popular types of SIPs among investors, their features, strategies, and the benefits they offer.
- Regular SIP
A regular SIP comes with a specific termination date and is suitable for those who prefer a disciplined and steady investment approach. In a regular SIP, you invest a fixed amount at regular intervals. It can be weekly, monthly, and even quarterly.
For example, you can invest a fixed amount of Rs. 10,000 monthly for 5 years in the best SIP plans offering competitive interest rates. The regular SIP helps you invest consistently, regardless of market conditions which over time leverages rupee cost averaging over time. This approach helps you purchase in falling and rising markets, which brings down your average cost per unit over time and maximises your returns.
- Flexible SIP
A flexible SIP provides you with the option to adjust the investment amount at different intervals. It offers flexibility in adjusting the investment based on your income, expenses, and market conditions. For instance, you can invest Rs. 3,000 one month and Rs 5,000 the next, depending on your available funds. This flexibility makes the SIP more adaptable and convenient for investors with irregular income or expenses, helping them continue investing without straining their budget.
- Top-up SIP
With a top-up SIP, you can increase your investment amount at regular intervals. For example, if you begin with a monthly investment of Rs. 8,000 in an SIP mutual fund, you can step up your contributions by 10% every year. This additional investment helps you grow your portfolio and generate better long-term returns.
Note that mutual fund houses have different rules for top-ups. Some allow you to increase your investment amount every 6 months, while others allow an annual increase.
- Trigger SIP
Experienced investors can go for trigger SIP to invest in different types of mutual funds. This SIP allows to set specific conditions or triggers that determine when to make investments. These triggers can be based on market conditions, such as the mutual fund’s Net Asset Value (NAV) reaching a specific level. When the trigger conditions are met, the SIP is initiated automatically.
For example, you can set a trigger that if the NAV falls by 5%, the trigger SIP will exit the scheme. This helps you invest in mutual funds online more efficiently and protect your capital from potential losses.
- Perpetual SIP
A regular SIP terminates after the period ends. However, there is no fixed tenure for a perpetual SIP. You can invest for as long as you want, and it provides the flexibility to stop or pause investments whenever required. Perpetual SIPs are suitable for investors who prefer an investment approach with no predetermined end date.
To wrap up
Understanding the different types of SIPs is crucial to invest wisely, diversify your portfolio, manage risks, and maximise returns. An SIP also offers the flexibility to invest in equity, debt, hybrid funds, and even gold mutual funds. Moreover, the top-up facility and flexible investment frequency help you invest as per your financial situation and market condition.
At the same time, make sure to consult a financial expert and stay updated with latest market trends to make informed SIP decisions.
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