If you are considering investing in mutual funds, you typically have two options - a Systematic Investment Plan (SIP) or a lump sum investment. An SIP investment allows you to invest in mutual funds through regular instalments, while a lump sum investment lets you invest a large amount all at once.
Although you might be familiar with the basics of these options, you might not realise that within SIPs, there are different types to choose from. Understanding these various types of SIPs is essential to finding the one that best fits your needs.
How many types of SIPs are there?
You can choose from the following seven types of SIPs:
Regular SIPs
Regular SIPs are the most straightforward type of SIP, where you invest a predetermined amount of money in a mutual fund scheme periodically. You have the flexibility to select how often you make your investments, such as monthly, weekly, quarterly, semi-annually, or annually, based on your preference.
Most investors opt for regular SIPs due to their simplicity, ease, and convenience. These SIPs also encourage disciplined savings and help you build wealth over time.
Perpetual SIPs
Perpetual SIPs are often confused with regular SIPs, but they are not the same. Unlike regular SIPs, which have a fixed investment tenure, perpetual SIPs have no predetermined end date. You can choose the frequency and amount of your investments, and your money will continue to be invested in the scheme until you decide to stop the SIP. If you do not stop the SIP, the transactions will keep occurring as scheduled.
Perpetual SIPs are typically suited for long-term financial plans, as they allow you to set up your investments and not worry about managing them actively. They also offer the flexibility to withdraw your money at any time, giving you control over your funds without concerns about withdrawal restrictions.
Flexible SIPs
As the name suggests, flexible SIPs offer greater flexibility compared to regular SIPs. While they share similarities with regular SIPs, flexible SIPs allow you to adjust your investment terms based on your preferences and market conditions. For example, if you want to increase your SIP when the market is down, and the Net Asset Value (NAV) is low, you can do so with a flexible SIP. In contrast, a regular SIP will continue investing the same fixed amount regardless of market fluctuations.
This flexibility can help you make the most of market opportunities and better align your investments with your financial goals.
Top-up or step-up SIP
A top-up or step-up SIP allows you to increase the amount of your existing SIP over time. For example, if you have an SIP of Rs 10,000 per month, you can set up a top up SIP to increase this amount periodically. Suppose you decide to increase your SIP by 5% each year. In the following year, your SIP amount will be Rs 10,500 (which is 5% more than ₹ 10,000). The year after, you can further increase it by 5%, and so on.
Top-up SIPs allow you to systematically boost your investments as your financial capacity grows. They offer the flexibility to choose the percentage or amount increase based on your needs and to align your investments with your rising income.
SIP with insurance
SIP with insurance combines investment and insurance into a single plan. With these plans, you invest in the market while also receiving life coverage. In the event of your passing, the life cover benefit is provided to your nominee. At the same time, your investment has the potential to grow, allowing you to address two financial goals simultaneously.
The life cover provided by such plans can vary. Some may offer coverage as a percentage of your SIP amount, while others may have different terms and conditions. This type of SIP allows you to enjoy the benefits of investing in mutual funds while also ensuring financial security for your loved ones.
Multi SIP
A multi SIP allows you to invest in multiple mutual fund schemes offered by the same Asset Management Company (AMC) within a single SIP. This approach simplifies the management of your investments, as you only need to complete the paperwork once for multiple investments.
For example, if you choose to invest Rs 10,000 through a multi-SIP in two different schemes, the amount will be automatically split between them, with Rs 5,000 invested in each scheme. This convenience helps you keep everything under one roof.
Trigger SIP
Trigger SIPs are designed to respond to specific market conditions. You can set triggers based on specific factors, and when these conditions are met, the SIP investment is executed. For example, if you set a trigger to invest when the NAV falls below a certain level, the SIP will be processed only when this condition is met. Until then, no investment will occur.
This method can be more volatile as it relies on market factors outside of your control. Therefore, a good understanding of market trends and experience in navigating market conditions are required. Trigger SIPs may not be suitable for novice investors as they come with added complexity and risk.
Conclusion
These various types of SIPs have been introduced to help align your investment strategy with your specific needs. The suitability of each method depends on your individual requirements and objectives. Making a well-informed decision by carefully analysing your financial goals is important.
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MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS. READ ALL SCHEME-RELATED DOCUMENTS CAREFULLY
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MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.
