Types of SIP Plans

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In today’s age, it is very important to have a proper financial planning in order to create a financial cushion to achieve your short and long-term objectives. However, achieving ultimate financial goals can become easier if you make a right investment choice and choose investment instruments that can provide higher returns over a long period of time.

A proper investment planning requires discipline and regularity in investment so that the volatility of the market can be neutralized.

As people are becoming smarter in regards to the right investment options, there is a plethora of investment instruments available in the market. One of the most common and disciplined investment options to invest in is SIP plan.

 In very simple terms, SIP can be described as a method of investing money in a specific mutual fund scheme on a predetermined date per month. SIP helps to create a strong portfolio over a longer period of time so that the amount invested by you can reap higher returns in the long run.

SIPs are open-ended funds which provide the option to invest and withdraw money anytime. Apart from this, there are many other benefits of investing in SIP. Let’s take a look at them.

  • Investing in SIP introduces discipline. In SIP, a fixed amount is deducted from your account every month and is invested in the fund of your choice.
  • When is the right time to invest in mutual funds? This confused a lot of people. However, making investments through SIP solves this problem as it is a periodic investment which works across the market
  • Another benefit of investing in SIP is ‘rupee cost averaging’. The investment made by you in SIP is averaged out; you tend to receive fewer units if the market is high and more units if the market is low.

 Thus, it protects your investments from market volatility without worrying about the right time to invest.

  • You can start investing in SIP with a minimum amount of Rs.500. Moreover, investing in SIP is hassle-free and simple.
  • If you start investing in SIP early and for a longer tenure, then you can avail the ‘power of compounding’. Through it, you can earn interest on the amount you invest. The interest so obtained gets accumulated and compounded over a period of time.

 Beside this, it may be surprising for you to know that there are four different types of SIP plans available in the market. Let’s take a look at it.

Top-Up SIP

Top-up SIP plans allow the investors to increase the SIP amount at regular intervals. These plans provide an advantage to invest in mutual fund schemes that are performing well in the market. Moreover, by increasing the investment amount at regular intervals, you can accumulate a huge corpus to achieve your financial goals.

Perpetual SIP

In Perpetual SIP, the investors can invest periodically in a mutual fund scheme of their own choice every month for a pre-determined tenure. While signing up the SIP mandate, the investors have a choice to not to enter the end date in the SIP mandate.

If the column is blank, it is considered to be perpetual SIP. This provides an option for the investors to redeem the fund at the time of closing and achieve the financial goal. As SIP is specifically designed to instill the habit of financial discipline and promote goal-based approach, it is always advised to start SIP for a fixed time period. 

Flexible SIP

This is a type of SIP plan that provides an option to decrease or increase the SIP amount according to your cash flow. So, in case, if you face any type of cash crunch due to any reason then you can skip paying few installments of SIP till your financial situation normalizes.

Similarly, you can also increase the SIP amount in case you receive a bonus or make some gains. While investing in flexible SIP, you will have to stipulate a fixed amount of investments. The plan provides an option to change the investment amount of that month 7 days before your SIP date.  

Trigger SIP

This option is beneficial for those investors who are aware of the market volatility and who have a proper understanding of the financial market. In order to start this SIP, you can set an index level, event, NAV or a specific date to start this SIP.  

However, it is advised to not opt for trigger SIP as it incites speculations. It is always advisable to choose a long-term tenure in order to foster your financial goals.

Wrapping it up!

Even though these SIP plans provide the facility of flexibility and convenience to you, your key objective should be to stay invested in SIP for a longer tenure and avoid any short-term financial limitations. Thus, you can achieve your long-term and short-term goals by making a disciplined and smart investment.