Types Of SIPs: What are the Different Types of SIP Plans in India?

  •  7 min
  • 0
  • 06 Oct 2023
Types Of SIPs: What are the Different Types of SIP Plans in India?

Key Highlights

  • SIP, or Systematic Investment Plan, is a smart way to invest in mutual funds with many benefits for investors.

  • SIPs offer flexibility - you can start, stop, or change the investment amount as per your needs.

  • There are different types of SIPs, like Regular SIP, Flexible SIP, Top-up SIP, Step-Up SIP, and Perpetual SIP.

  • It's recommended to hold SIP investments for at least five years for positive returns.

  • To start an online SIP, create an account with a fund company, complete KYC verification, and link your bank account.

Knowing the different types of SIPs can help you choose the one that best suits your goals. Systemic investment plans can come in a variety of forms, including:

Regular SIP This is a well-liked SIP investment strategy. You can set your investment amount and investment frequency in a regular SIP and get ready to pursue your financial objectives.

Regular SIPs invest a fixed amount and start up automatically at regular periods.

You can gain from rupee cost averaging since you can invest steadily and equally amid market ups and downs. Additionally, it is a hassle-free way for you to automatically invest in mutual funds without the need for regular participation from you.

Flexible SIPs Additionally known as Flex SIP or Flexi SIP, it enables you to modify the SIP amount in accordance with your financial situation and the state of the market. When it comes to market situations, there is a predetermined formula that allows investors to invest more when the markets are falling and choose a smaller SIP amount when the markets are rising.

Similar to this, if you find yourself in a tight spot financially, you can lower the SIP amount and raise it if you have extra cash available. The investor can change the quantity of flexible SIPs as necessary.

Top-up SIP The Top-up SIP gives you the freedom to invest more when you have a greater income or more money available to invest by allowing you to increase your investment amount periodically.

Get the most out of your investments by consistently investing in the best and highest-performing funds.

Step-Up SIP Boost or step up: You can raise the SIP amount using SIP at predetermined intervals. In a mutual fund plan of your choice, for instance, you may begin investing with a SIP of Rs. 10,000 and ask the fund house to increase the SIP amount by Rs. 1,000 every six months.

As per your request, the SIP amount will be raised to Rs. 11,000/month after the first six months of investing Rs. 10,000/month. From the thirteenth month, it will once more rise by Rs. 1,000 every month. Salaried workers who anticipate a rise soon may find the step-up SIP to be a great alternative.

Trigger SIP Investments only take place in trigger SIPs when a particular market event takes place. This particular occurrence could be a positive market trend or a targeted NAV level. You need to understand the market to make money from this kind of SIP. Therefore, this SIP is appropriate for seasoned investors who have the necessary time and knowledge. This SIP is not for you if you are a passive investor.

Perpetual SIP Perpetual SIP is one of the best options available among systematic investing because it is linked to every SIP investor. When you launch a SIP, you must define its start and end dates according to the SIP mandate. Most investors specify the starting date, but very few do so as well.

Every SIP that doesn't have an expiration date specified in the mandate becomes a perpetual. You do, however, have the choice to halt the SIP by sending a written request to the fund house. Make sure to include the SIP end date as well if you only want to invest for a set period.

Multi SIP A multi-SIP enables you to invest in various fund house plans with only one SIP. For instance, each of the four schemes will receive Rs. 1,250 if you join a multi-SIP with Rs. 5,000 split among them.

SIP with Insurance The advantages of insurance and SIP are combined in this. Your monies are invested in mutual funds, and your fund house provides you with a life insurance policy.

If the investor passes away unexpectedly during the investment period, this insurance policy pays a lump sum to the nominee. The coverage amount may change depending on the SIP investment amount.

Here's a breakdown of how SIP (Systematic Investment Plan) functions:

Automatic Debit: Once you apply for one or more SIP plans, the payment is automatically debited from your bank account at the predetermined time interval.

Investment in Mutual Funds: The debited amount is then invested in the mutual funds you have purchased. This is typically done in accordance with your selected SIP plan.

NAV (Net Asset Value): The units of mutual funds are allocated based on the mutual fund's Net Asset Value. This value fluctuates depending on the market conditions.

Accumulation of Units: With each investment in an SIP plan in India, more units are added to your account. This means that over time, your investment grows.

Compounding Returns: As more units are added, the amount reinvested and the return on those investments increase with each investment. This is due to the compounding effect, which allows your money to earn returns on the returns.

Flexibility in Returns: At the end of the SIP's tenure or on a regular basis, the investor has the option to receive the returns. This flexibility allows investors to decide how they want to utilise the returns on their investments.

Let us understand with an example.

Consider that you have set aside one lakh rupees to invest in a mutual fund because you desire to do so. There are now two ways that you can finance this purchase.

You can also invest a lump sum of Rs 1 lakh, generally known as a one-time payment, in a mutual fund. Alternatively, you could decide to invest via a Systematic Investment Plan (SIP). You must begin a SIP for a specific amount. Say Rs 500. Then, on a predetermined fixed day each month, Rs 500 will be automatically taken out of your account and credited to the mutual fund you choose to invest in. This will carry on until the deadline.

SIP investments can be begun whenever the investor desires, with the knowledge that there is minimal risk involved. The investor must choose a strategy that is consistent with his long-term goals. The earlier investors start SIP investment plans, the better; there is no optimal window of time for doing so. Do your research before making any investment decisions.

SIP plans offer several advantages:

  • Rupee Cost Averaging: SIPs help average out the cost of investment over time, reducing the impact of market volatility.
  • Power of Compounding: Starting early and being consistent with SIP contributions can lead to significant wealth accumulation due to the power of compounding.
  • Disciplined Investing: SIPs instil financial discipline by encouraging regular investments, regardless of market conditions.
  • Convenience and Accessibility: SIPs can be initiated online, making it a convenient and accessible investment option for individuals.
  • Diversification: Through SIPs, investors can diversify their portfolio across various asset classes and sectors, reducing overall risk.

Conclusion

Investors can attain particular financial objectives through a variety of SIP plan types. While the basic SIP is an option for all investors, you may also take into account one of the alternatives above if it fits your financial situation and investing requirements. But in order for your choice to produce the desired effects, you must be sure that you fully comprehend how a specific SIP operates.

FAQs on Types of SIP

A systematic investment plan, or SIP plan in India, is a systematic strategy to invest in mutual funds. It enables investors to make a set regular contribution (monthly or quarterly) into a preferred mutual fund plan. This encourages sound money management and aids in long-term wealth accumulation.

A Top-up SIP allows investors to increase their monthly SIP contribution periodically. This helps in accelerating wealth accumulation without the need for a separate investment.

Experienced fund managers claim that investments in SIPs only produce positive returns when held for five years or more.

A Flexible SIP offers the option to vary the investment amount or frequency based on the investor's financial situation. It provides adaptability in aligning investments with changing circumstances.

Enjoy Zero brokerage on ALL Intraday Trades
+91 -

personImage