Types of SIP: A Complete Guide to Different SIP Mutual Funds
Guide To Different SIP Mutual Funds
An systematic investment plan (SIP) permits you to put aside small amounts of money into mutual funds, accumulating the wealth over time. There are a myriad of SIP options to choose from, knowing the various types of SIPs as well as their pros and cons and the funds that they work with can help you organize the best way to invest. Let’s look into the diverse varieties of SIPs as well as the aspects to be aware of when selecting the best one.
This guide will discuss the different kinds of SIP and different types of SIP mutual funds, and how various kinds of SIP are there, and will address essential questions that will help clarify your questions.
What Are the Different Types of SIP?
Each type of SIP offers unique benefits based on how you want to invest. Let’s explore the ten types of SIPs:
1. Regular SIP
In a regular SIP, investors contribute a fixed amount at regular intervals, usually every month. This type of SIP allows investors to automate their investments and benefit from the power of compounding over time.
- How it works: You invest a fixed amount at regular intervals (monthly, quarterly, or yearly).
- Best for: Beginners or those looking for disciplined, hassle-free investing.
- Example: INR 5,000 per month invested for 10 years in an equity mutual fund.
2. Top-Up SIP (Step-Up SIP)
In this type, the investment amount increases periodically, usually by a fixed percentage. This strategy is ideal for people who expect to increase income or savings over time.
- How it works: In this SIP, you increase your investment amount periodically, say by 10-20% each year, in line with your rising income.
- Best for: People expecting a steady rise in income and wanting to grow their investments faster.
- Benefit: Helps you take advantage of compounding by increasing your contributions over time.
3. Flexible SIP (Flexi SIP)
Flexible SIPs allow investors to modify their investment amount and time interval as per their financial needs. Through these plans, investors can easily change, reduce or increase their SIP contributions whenever they want.
- How it works: You can modify the amount you invest each time based on your financial situation. This is useful when income fluctuates, like for freelancers.
- Best for Investors with irregular income or varying financial obligations.
- Example: You invest INR 2,000 in one month and INR 6,000 the next, as per your cash flow.
4. Perpetual SIP
Continuous SIPs run for an indefinite period until the owner decides to terminate or change the terms. Unlike regular SIPs, which have a predefined time frame, they offer investors the opportunity to invest in ongoing investments that do not require a manual process of renewal.
- How it works: Unlike fixed-term SIPs, this type of SIP continues indefinitely, allowing you to withdraw whenever needed.
- Best for Investors seeking long-term flexibility without worrying about the SIP tenure.
- Tip: You can stop or pause the SIP at any point if needed.
5. Trigger SIP
Triggered SIPs allow investors to set predefined triggers based on market conditions or fund performance. Investors can automate their investment decisions by setting triggers to start, stop or increase SIPs based on specific market parameters.
- How it works: This SIP allows you to invest based on market conditions. You set a trigger point, such as when a specific index value is reached or a market dip occurs.
- Best for: Experienced investors who can predict market movements and want to maximize gains.
- Example: A trigger SIP could invest automatically when the Nifty 50 falls below a specific level.
6. Lumpsum SIP:Â
This involves investing a substantial amount initially and then making regular SIP contributions. This can be a good option if you already have a substantial amount to invest.
7. Goal-Based SIP:Â
This type of SIP is designed to meet specific financial goals, such as buying a home, funding your child’s education or retirement. The investment strategy is designed to achieve these objectives.
8. Equity SIP
Equity SIP involves investing in equity mutual funds using an investment strategy that is systematic. They invest primarily in stocks and have an opportunity to earn higher yields over the course of time. Equity SIPs can be a good choice for investors who want to gain capital and are willing to accept the volatility of markets.
9. SIP with Insurance
This combines the benefits of SIP and insurance. Your funds are invested in mutual funds, and you receive a life insurance cover from your fund house.
The insurance policy provides lump-sum payments to the person who is the person who invested dies within the period of investment. The amount covered is based on the type of investment that is made by the SIP.
10. Multi SIP
Multi SIP permits you to put money into several Systematic Investment Plans (SIPs) in the same fund, or different funds. This allows diversification between different funds or schemes as well as spreading risk, which could increase the returns.
Types of Funds in SIP: Where Can You Invest?
SIP is a great way to invest in different types of mutual funds. Some of the most popular types of mutual funds cover the following:
- Equity Funds:
- Invest in stocks, offering high returns with high risk. Best for long-term goals like retirement or children’s education.
- Debt Funds:
- Invest in bonds and fixed-income instruments. These are safer than equity funds but offer lower returns. Ideal for conservative investors.
- Hybrid Funds:
- A combination of equity and debt, balancing both growth and stability. Suitable for moderate-risk investors.
- ELSS Funds (Equity Linked Savings Scheme):
- These funds offer tax benefits under Section 80C of the Income Tax Act and have a lock-in period of 3 years. Ideal for tax savings and wealth creation.
Factors To Consider When Choosing a SIP
- Investment Horizon: The length of time you plan to stay invested significantly impacts your choice of SIP. For short-term goals, debt funds might be suitable, while equity funds are generally preferred for long-term wealth creation.
- Risk Tolerance: Assess your comfort level with market fluctuations. If you are risk-averse, debt funds or hybrid funds might be more appropriate, while equity funds are suitable for those who can tolerate higher volatility.
- Financial Goals: Clearly define your objectives. Whether it is retirement planning, building an emergency fund, or funding a child’s education, your goals will determine the type of SIP and the underlying funds.
- Fees and Expenses: Compare the expense ratios and other charges associated with different funds. Lower expenses can boost your returns in the long term.
- Tax Implications: Understand the tax implications of investing in mutual funds through SIP. Consider factors such as capital gains tax and dividend distribution tax.
FAQs on SIP Investments
-
What are the different types of SIP?
There are ten types of SIPs: Regular SIP, Top-Up SIP, Goal-Based SIP, Flexible SIP, Perpetual SIP, trigger SIP, Multi SIP, SIP with Insurance, lump sum SIP, Equity SIP, etc.
-
Can you do SIP for every type of mutual fund?
It is true that SIP can be used to invest in nearly all kinds of mutual funds, including equity and hybrid funds, as well as debt and the ELSS. This allows for flexibility and comfort whatever the type of fund. Some funds require minimum investment levels to be used for SIPs However, the majority of them allow SIP contributions.
Key Considerations for SIP Investors
- Start Early: The earlier you start investing through SIPs, the more time your money has to compound.
- Stay Consistent: Discipline is key to the success of a SIP. Do not skip payments or make irregular contributions.
- Rebalance Regularly: Review your portfolio periodically and balance it in line with your investment goals and risk tolerance.
- Seek Professional Advice: If you are unsure about choosing the right SIP or fund, consult a financial advisor.
If you are aware of the different types of SIPs and carefully examine the factors that influence them, you can move towards your financial goals. Keep in mind that SIPs can be a very effective tool for creating wealth in the long run. However, it is a process that requires perseverance and commitment.
The Bottom line About SIP
The investment process of SIPs can help you accumulate wealth over time, and also manage risks effectively. There are a variety of available SIPs, you may select one that is based on your earnings, knowledge of markets and financial objectives. No matter if you’re a newbie or an experienced investor there’s an SIP choice that meets your requirements.
There are ten types of SIPs: Regular SIP, Top-Up SIP, Goal-Based SIP, Flexible SIP, Perpetual SIP, trigger SIP, Multi SIP, SIP with Insurance, lump sum SIP, Equity SIP, etc.
Indian Fund Bazaar