As investors are becoming smarter in regard to the apt investment options, there are a plethora of investment instruments available to the investors in the financial market. One of the most popular and disciplined investment instruments is SIP investment. This article will cover different types of SIP options offered to investors.
What is SIP?
Systematic investment plan or SIP is an investment vehicle offered by mutual fund houses to invest in mutual funds.
Types of SIP
Following are some of the most popular types of SIP in India:
- Top-up SIP
Top-up SIPs offer their investors with the flexibility of either increasing or decreasing their SIP investment amount at regular intervals. As the salary of an individual usually hikes every year by a certain percentage, it makes sense to increase the SIP amount by the same percentage of salary surge each year. You can also use an SIP calculator to have a clear calculation. For instance, let’s assume Suresh started an SIP investment with Rs 10,000 per month and asked for a yearly top-up of Rs 1500. So, after first year his SIP would be Rs 11,500 pm. Then after another year, it will go up to Rs 13,000 and so on. With the increase in our age, our income also tends to grow, and it is suggested that our investments should also increase since our goals increase and the time horizon to achieve them decreases. - Perpetual SIP
Perpetual SIPs do not require any end date toone’s SIP investments. However, one has the liberty to redeem the fund any time they want, according to their needs. A few years back, this facility was not available to investors. As a result, a lot of SIPs would automatically stop once the investment duration is served. Due to this stoppage, it required unnecessary paperwork if the investor wants to restart the SIP. More often than not, individuals realised that any sort of discontinuity would interrupt the power of compounding. Hence, this fortified the introduction of perpetual SIPs among investors. - Flexible SIP
As opposed to traditional SIPs wherein the SIP amount is fixed, flexible SIPs do not have any fixed investment amount. Under this type of SIP, investors have the option to change their investment amount every time before instalment. An investor needs to choose a regular amount and the maximum amount they’d like to invest. This strategy is beneficial for those individuals who have an irregular flow of income. Some pro-active investors also resort to flexible SIPs to invest more when the markets are low. - Trigger SIP
Under trigger SIP, investors can redeem a part orfull amount of their SIP investment or even automatically switch to a different scheme as soon as the SIP amount reaches a pre-defined trigger point. This trigger could be set for both upside or downside events. Trigger SIP is beneficial to those who have a good understanding of the market volatility and the financial markets in general.
An investor invests in SIP for the financial discipline it offers which is required for investments in mutual funds. Almost all mutual fund houses provide a mutual funds SIP calculator to help you understand the estimated returns on your SIP investments. An SIP calculator can also be used to calculate the required amount to reach a particular corpus.Happy investing!