Different types of SIPs and when to choose them

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Investing is a smart and strategic financial move you can make for a secure and stable future. The earlier you start, the more benefits you will receive in the long run. However, with the busyness of today’s life and multiple responsibilities, finding the time and discipline to invest regularly is tough. That’s where Systematic Investment Plan (SIP) helps.

An SIP offers a disciplined way to invest in mutual funds at an interval of your choice and in an amount that suits your budget. It comes in different types, each catering to different investment needs and goals. Choosing the right SIP depends on factors like your risk tolerance, investment horizon, financial capacity, and goals.

Discussed below are different types of SIPs and when to choose them, highlighting how each type can help you achieve different financial objectives.

1. Fixed SIP or regular SIP

A fixed SIP allows you to invest a fixed amount at regular intervals, say, weekly or monthly. Here, the investment amount remains constant, irrespective of the market conditions.

When to choose this SIP?

A fixed SIP can be beneficial when you have already decided on your investment tenure and financial goals. Also, if you have a clear idea of how much money you can invest every month and for how long, a fixed SIP can work for you.

2. Flexible SIP

A flexible SIP gives you the flexibility to change your investment amount at different intervals. For instance, if the market is performing well, you can increase your investment amount.

When to choose this SIP?

This SIP is ideal for investors with a fluctuating income, allowing them to adjust their investments based on their financial situation. Moreover, those who consistently monitor the market may also find this SIP useful as it gives them the opportunity to leverage market fluctuations.

3. Trigger-based SIP

A trigger-based SIP is an advanced version of the flexible SIP. A trigger-based SIP allows investors to set a predetermined trigger level based on factors such as net asset value (NAV), capital appreciation, and depreciation. Let’s say when your fund’s NAV falls below the set trigger level, the investment is automatically adjusted.

When to choose this SIP?

Investors who want to have control on their investments and take advantage of short-term market fluctuations can choose trigger-based SIP. However, this type of SIP is more strategy-driven and requires a deep understanding of the market. So, it is ideal for experienced investors who can speculate the market trends and movements.

4. Perpetual SIP

A perpetual SIP allows you to keep investing in mutual fund schemes for an indefinite period. You don’t have to set an end date for it. Your periodic instalments are invested continuously unless you stop them or give specific instructions to cease the investment.

When to choose this SIP?

It’s ideal for investors who want to create long-term wealth and can continue their SIPs for the long term. This flexibility gives investors the power to make their own investment decisions and adjust them to their changing financial needs.

5. Top-up SIP or step-up SIP

As the name suggests, this SIP plan allows investors to increase their SIP investment at regular intervals. This facility helps them make the most of their growing finances without having to make a lump sum investment in one go.

When to choose this SIP?

Step-up SIP is a beneficial investment strategy for salaried individuals who receive regular yearly or half-yearly increments. Investors whose financial goals have changed and require a larger investment can also choose step-up SIPs. Even young professionals can start with a small investment amount and increase it every year via step-up SIP as they receive increments.

Conclusion

These are the five most popular types of SIPs among investors, their features, strategies, and benefits. You can easily invest in an SIP online and choose from debt funds, hybrid funds, equity schemes, and even gold mutual funds. To maximise SIP benefits, it is advisable to consult a financial advisor who can offer valuable insights and customised investment strategies.