What are the Different Types of SIPs?
“Success isn’t always about greatness. It’s about consistency. Consistent hard
work leads to success. Greatness will come.” – Dwayne Johnson
It requires consistency to achieve a lot of things in life. Similarly, if you
want to achieve your financial goals, you need to invest regularly. Mutual fund
is an easy investment option for individual investors. As per your financial
goals and risk tolerance, you can choose the best mutual funds to serve your
purpose. Systematic Investment Plan (SIP) is a route to invest in mutual funds
through which you can invest a pre-determined amount at regular intervals. In
this way, you will achieve your financial goals.
Moreover, to make it easy for investors to continue
investing, fund houses offer four types of SIP to their investors.
Types of Systematic Investment Plans(SIP)
Flexible SIP, Trigger SIP, Top-up SIP and perpetual
SIP are the four types of SIP. Here’s how you can avail the benefits.
Flexible SIP
Flexible SIP allows investors to be flexible with
their SIP amount. You can increase, decrease or pause your SIP amount as per
your financial conditions. With the help of this facility, you can decrease or
pause your SIP amount when you cannot invest the entire amount. In this way,
you don’t have to stop your investments and you can continue to build wealth.
Similarly, you can increase the SIP amount after a rise or hike in your salary.
Step-Up SIP or Top Up SIP
Increase your SIP regularly to reach your financial
goals faster through Step-Up SIP. With the help of Top up SIP, you can top up
your SIP by a certain percentage at a regular interval, say every year. The
Step-Up SIP amount may depend on the expected increase in yearly income. E.g.
if your current SIP is Rs.10,000 and you want to increase the amount by 10%,
then your monthly SIP amount for the next year will be Rs.11,000. In the third
year, your monthly SIP will stand at Rs. 12,100.
E.g. let us assume that you are investing Rs.20,000
through SIP. You want to continue investing for 15 years. So, at the end of 15
years and at 12% CAGR, you will accumulate Rs.1 crore.
Lets take another situation where you increase your
SIP by 10% every year. In that case, you will invest Rs.20,000 in the first
year, Rs.22,000 in the second year, and so on. After 15 years at an expected
12% CAGR, you will build a corpus of Rs. 1.7 crore by investing Rs. 76.25
Lakhs.
Trigger SIP
In trigger SIP facility, mutual fund houses redeem
a portion of the investment of the entire investment in one fund to another
fund after it activates a certain trigger. NAV trigger, Index level trigger,
capital trigger and time-based triggers can be a few types of triggers.
This facility is used by seasoned investors who
understand the working of mutual fund and markets. Newbie investors and people
who don’t clearly understand the market should not take this facility.
Perpetual SIP
Perpetual SIP does not have a SIP termination date.
Typically, investors can opt for 1-year SIP, 5-year SIP, etc. Here, investors
have to set up a new SIP after the SIP termination date if they want to
continue investing through SIP. However, in perpetual SIP, investors
don’t have to worry about termination date and they can keep on investing as
long as required to achieve their financial goals. It is the best option for
investors with long-term financial goals.
Conclusion:Systematic Investment
Plan (SIP) is a great investment facility for investors looking to achieve
financial goals by making regular investments at a predetermined interval. Fund
houses offer four types of SIP to make it easier for investors to invest in
mutual funds as per their requirement. Flexible SIP, Trigger SIP, Top-up SIP
and Perpetual SIP are the four types of Systematic Investment Plan. Contact us
to know more.
This blog is purely for educational purpose and not
to be treated as an personal advice. Mutual fund investments are subject to
market risks, Read all scheme related documents carefully
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