SIP, Systematic Investment Plan is nothing but a systematic way of investing. Investing through SIP/s has gained popularity over the last few years. Especially retail investors have also participated in Mutual Fund through SIP.
However, most investors are not aware of the features available in SIP. By understanding the types & facilities of SIP/s, investors can improve their investment planning.
What are the types of SIPs?
Flexible SIP
The first type is Flexible SIP. In this type of SIP, investors have a choice of changing the monthly investment amount that is being invested. This feature can help investors when the income stream fluctuates which makes it difficult to invest a fixed sum every month. When the income is not regular, flexible SIP becomes the better choice. Businessmen or professionals can use this flexible SIP. Even if the income is regular, investors who wish to make a decision based on market levels can opt for flexible SIP. Investing more when the markets are falling and investing lower when markets are at highs, can be a smart strategy.
Step UP SIP
As the name suggests, under the Step-up SIP, investors have a choice to increase the SIP amount after regular intervals. For instance, you can start your investment journey with a small amount i.e. Rs. 10,000/. However, you can instruct the Mutual Fund Company to increase the SIP amount by Rs. 2,000 after every year. So, for the first year, you invest Rs. 10,000 and after one year your SIP amount would be Rs 12,000, and Rs 14,000 after, that, and so on.
Ideally, every investor should increase the SIP amount every year as the income increases, however, we tend to forget it. Step-up SIP is the best way to do it. You don’t need to remember to increase the SIP amount. As per the instructions given to the Mutual Fund Company, the amount will automatically increase.
Let’s see how a small increase in SIP every year makes a difference in your corpus:
An increase in the SIP amount by just 5% every year can help you accumulate Rs. 11,65,383/- which is considerable.
Why you should opt for Step-Up SIP?
Apart from the benefit specified in the above table, there are more reasons why you should opt for Step-Up SIP. Step-Up SIP accounts for your income earning capacity. Hence, your savings do not remain constant. It increases with your income. Further, the power of compounding works with the Step-Up SIP and hence, you can achieve your financial goals sooner.
Perpetual SIP
At the time of investing through SIP, it is required for investors to fill in the start date and end date of SIP. The end date is the date of maturity. In case, an investor fills in the start date and does not mention the end date of SIP, such SIP is considered perpetual i.e. without end. At times investors put a short-term maturity date i.e. 2 years or 3 years and forget to renew SIP after maturity. Perpetual SIP helps investors to solve the problem of forgetting to renew the SIP after maturity. Further, in perpetual SIP, investors have an option to stop the same by submitting a written application to the Mutual Fund Company or by giving instructions to the platform on which the SIP is being routed.
Trigger SIP
Experienced, informed or Pro-investors use this type of Trigger SIP. Investors can set a trigger such as Market Level, NAV of a scheme or returns, etc. The SIP amount is deployed into the funds when this trigger is met. Until the trigger is invoked, the SIP amount is not invested.
Let me put it through an example. If an investor sets a trigger that your SIP amount should be used to purchase units of the selected scheme only if the NAV of the scheme falls up to a certain level decided. In Trigger SIPs, the date of the SIP will depend on the trigger and investors do not invest regularly.
Conclusion:
Amongst all the above types of SIP/s, Step-Up SIP is the one that can be implemented by every individual easily.
Step-up SIP investment is necessary to accumulate wealth faster. Even a small amount makes a huge difference due to the Power of Compounding. Step-up SIP makes you achieve financial long-term goals easier and faster.