Introduction
SIPs are very popular and disciplined investments in mutual funds. They allow an investor to invest small amounts of money periodically over time, building a steady amount of wealth and benefiting from market fluctuations. There are various types of SIPs, including Regular SIP, Top-up SIP, and Trigger SIP, each catering to different goals, cash flow needs, and risk tolerances . Knowledge of the types of SIPs can also help investors devise the right plan to suit their financial goals.
Systematic Investment Plan (SIPs)
A Systematic Investment Plan, or SIP, is a plan in which investors invest equal amounts over a specified period of time in a mutual fund , trading account, or retirement accounts like a 401(k). SIPs allow for regular savings with smaller amounts and enable investors to enjoy the long- term benefits of dollar-cost averaging. By using DCA as a strategy, an investor accumulates wealth or builds a portfolio over time.
Types of Systematic Investment Plan (SIPs)
Regular SIP: The most common form of SIP is a Regular SIP. In this scheme, you make fixed deposits over a specified investment term at regular intervals. Your SIP can mature monthly, bi-monthly, quarterly, or half-yearly. This is one of the simplest types of SIPs , and the only requirement is developing a saving habit to achieve your target corpus. Regular SIPs help build a significant corpus based on small, periodic contributions .
Top-up SIP:The Top -up SIP option allows you to increase the SIP amount at regular intervals . This plan lets you invest in market-linked funds performing well in the market. Moreover , you can accumulate substantial corpuses with incremental investments over time .
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Flexible SIP: This SIP scheme enables you to adjust the SIP amount either downward or upward based on your cash inflow. Thus, at any point when you experience a cash shortage for various reasons, you may pause a few installments of the SIP until your finances return to normal. Similarly, you can increase the SIP amount when you receive a bonus or achieve gains. In this flexible SIP, you must specify a fixed number of investments. It allows altering the investment amount for that month up to seven days prior to your SIP date.
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Perpetual SIP: Periodical Investments in Perpetual SIP You may choose any one of the market-linked investment plans available under your selected SIP for any period you prefer . Even after submitting the SIP mandate application, you also have the option to provide an end date or leave it blank when furnishing the SIP mandate.
If the column is left blank, then at the time of closing, you can redeem the fund and achieve your financial goal. The SIP plans are specifically designed to promote financial discipline and a goal-based approach ; hence , one should always start with an SIP for a stipulated term.
Trigger SIP: In trigger SIPs, investments are made only when a specific market event is triggered. This event could be a positive movement in the market or a particular NAV level predetermined in advance . To profit from such an SIP, you need to be aware of the market. Therefore , this SIP is meant solely for professional investors who can dedicate time and have sufficient market knowledge . If you are a ‘hands-off’ type of investor, then this SIP is not suitable for you.
Insurance-based SIP: An insurance -based SIP is essentially an investment under a market-linked insurance plan , where one part of the premium is used for insurance coverage, and another portion is directed towards a market-linked investment fund. ULIP-based SIPs offer the advantage of providing insurance protection alongside wealth generation through market investments.
Conclusion
Diverse types of SIPs provide flexibility and options for investors, enabling the customization of investments to meet individual requirements and objectives. Whether seeking long-term growth, flexible contributions, or trigger-based strategic investments in the market, there is an SIP type that fits every investor profile. Choosing the right SIP allows investors to establish a solid, objective investment strategy and work systematically toward financial security and success.