Types of SIPs (Systematic Investment Plans) You Must Know About

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Systematic Investment Plans or SIPs are a hassle-free mode of investing in mutual funds. With SIPs, you can start investing in a fund of your choice without having to invest a large sum in one go. In this article, we shall explore the different types of SIPs that are available in India, and shed light on their key features and benefits. 

With a wide array of investment options at your disposal, it is pivotal to assess which investment instruments are in line with your overall financial plan, earning capacity, and risk appetite. Irrespective of the option/s you choose, you must practise discipline and consistency in your investment plan. One of the easiest ways to inculcate financial discipline and regularity in investing is starting a Systematic Investment Plan (SIP).

In this article, we shall delve into 

  • What is an SIP? 
  • What are the different types of SIPs? 

What is an SIP?

A Systematic Investment Plan or SIP is a mode of investing in mutual fund schemes. You can select a mutual fund to invest in and choose the SIP route to make small, regular, and convenient contributions to your investment. It is convenient to set up an auto debit from your bank account to ensure the seamless processing of your SIP installment, whether it is monthly, quarterly, bi-annual, or yearly. 

Different types of SIPs available in India 

There are different types of SIPs you can choose from. While each type of SIP investment follows the same basic principle of small investments over a period of time, they have several distinct features which make them stand out. Let us discuss the different types of Systematic Investment Plans that are available in India. 

  • Regular SIP: This type of SIP is the simplest version of a Systematic Investment Plan. In order to start a regular SIP, you have to choose a mutual fund, select the amount you wish to invest with each installment as well as the frequency of said installment, and the period of investment. For instance, you can start a monthly SIP of ₹500 for five years, and every month till the maturity of the plan, the aforementioned amount shall get transferred from the linked bank account to the selected mutual fund. When the SIP’s term is over, you can either withdraw the amount accumulated in the corpus or renew the plan. 
  • Top-up SIP: Aimed at increasing your investment with a rise in your earnings, a top-up SIP comprises the option to consistently enhance your periodic contributions to the selected mutual fund. For instance, you can start a top-up SIP with a monthly investment of ₹500 and an annual top-up of, say, 20%. During the first year of the plan, ₹500 would be transferred to the chosen mutual fund. In the second year, however, ₹600 would be the monthly SIP installment amount. This way, you can increase the quantum of your investment in a systematic manner. 
  • SIP with insurance cover: This type of SIP entails the dual benefits of Systematic Investment Plan and a life insurance plan. Should you choose an SIP with a life insurance cover, a regular SIP shall be accompanied with life insurance coverage, with the proceeds of said plan passing on to the designated nominee in the event of your demise during the SIP tenure. 
  • Perpetual SIP: In many ways, a perpetual SIP is akin to a regular SIP; the only major difference between the two is the tenure. While a regular SIP has a predetermined tenure, a perpetual SIP does not. Installments for a perpetual SIP shall keep getting debited from the linked bank account (provided there is sufficient balance in the account) until you request the relevant fund house to stop the plan. With this type of SIP, you can make long-term investments without the hassle of renewals. 
  • Multi SIP: As its name suggests, a multi SIP is a type of Systematic Investment Plan that can be used to invest in more than one mutual fund scheme offered by a fund house. By choosing a multi SIP, you can allocate funds towards several mutual funds with the same periodic debit from your account.
  • Trigger SIP: This type of Systematic Investment Plan revolves around the concept of triggers driven by specific market movements. Only when the predefined market movements happen to pass shall the transfer to the SIP happen. A prime example of the triggers for this type of SIP is the Net Asset Value of the selected fund reaching a certain level. 
  • Flexible SIP: Another type of Systematic Investment Plan is a flexible SIP. If you invest in a mutual fund through a flexible SIP, you can request a change in several facets of the plan at a later stage, including the amount of each contribution, the frequency of each installment, etc. With a flexible SIP, you can make the required changes to your SIP investment fund, albeit with at least a week's notice to the relevant fund house. 

To sum it up 

Different types of SIPs carry varying features and benefits. While some SIPs are basic plans, others may carry the elements of additional investment, insurance coverage, flexibility, etc. You can peruse different types of SIPs and select the one that best suits your investment goals.

Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.

This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.

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