There are two modes for investing in mutual funds. Under the lump sum investment mode, you invest at once. On the other hand, a SIP mutual fund investment works differently. You invest in your mutual fund scheme every month through the SIP mode. A simple internet search titled ‘invest in SIP’ to learn more about this mode and its different variants. Yes, you read that right. There is more than one variant of SIP. They are:
1. Regular SIPs:
In regular SIPs, you fix an amount and keep paying it. You don’t even need to pay it manually. Leave a standing instruction with the bank, and automatic deduction will take care of your SIP investment. It is a hassle-free process of investing in mutual funds online.
2. Top-up SIPs:
Top-up or step-up SIPs allow you to gradually increase or “step up” your monthly SIP investment amount. Numerous AMCs have a provision to step up SIP payments. The step-up facility adds more flexibility to the recurring contributions and helps you reach your financial goals quickly. With every salary hike, you can simultaneously increase your monthly SIP contributions. This feature will help you build a sizeable investment corpus faster because of compounding. Hence, choosing a SIP plan offering a top-up facility is prudent.
3. Perpetual SIPs:
Enter the tenure of SIP investment while filling out the SIP application form. If the investment tenure is not specified, then the SIP is considered a perpetual SIP, i.e., the SIP will continue unless you notify the AMC or the manager to stop investing. This type of SIP allows you to stay invested and redeem your funds when required.
4. SIPs with Insurance:
Some AMCs also offer insurance cover if you opt for long-duration investments. Usually, the initial insurance cover is ten times the first SIP amount. It gradually increases over time. Also, note that this SIP variant is available only for equity mutual fund investors. Please remember that term insurance is an add-on feature and does not impact the mutual fund performance.
5. Flexible SIPs:
As the name suggests, this type of SIP offers the flexibility to change the amount as required. Invest more when the markets are down and vice-versa. Furthermore, you can also alter the amount according to your financial conditions. You can lower the investment amount when you are going through financial crunches. Please notify the asset management company at least a week before the deduction date for any changes.
6. Trigger SIPs:
Trigger SIP is suitable only if you are sure of the market movements. In this systematic investment plan, you must know when to take the buy and sell positions. You can set your SIP start date and redeem or switch it once the selected event occurs under this trigger SIP. Trigger SIPs are recommended only for experienced investors because they involve investor speculation. You should have sound knowledge for setting appropriate triggers effectively.
Conclusion:
SIPs provide an opportunity for creating wealth in the long run. Types of SIPs are identifiable as per the investment objective, like wealth creation and investment plus insurance. You should choose the type of SIP that aligns with your investment horizon and goals.