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Different Types of SIPs

  April 10,2021

What are the Different Types of SIPs?

“Success isn’t always about greatness. It’s about consistency. Consistent hard work leads to success. Greatness will come.” – Dwayne Johnson
It requires consistency to achieve a lot of things in life. Similarly, if you want to achieve your financial goals, you need to invest regularly. Mutual fund is an easy investment option for individual investors. As per your financial goals and risk tolerance, you can choose the best mutual funds to serve your purpose. Systematic Investment Plan (SIP) is a route to invest in mutual funds through which you can invest a pre-determined amount at regular intervals. In this way, you will achieve your financial goals.

Moreover, to make it easy for investors to continue investing, fund houses offer four types of SIP to their investors.

Types of Systematic Investment Plans(SIP)

Flexible SIP, Trigger SIP, Top-up SIP and perpetual SIP are the four types of SIP. Here’s how you can avail the benefits.

Flexible SIP

Flexible SIP allows investors to be flexible with their SIP amount. You can increase, decrease or pause your SIP amount as per your financial conditions. With the help of this facility, you can decrease or pause your SIP amount when you cannot invest the entire amount. In this way, you don’t have to stop your investments and you can continue to build wealth. Similarly, you can increase the SIP amount after a rise or hike in your salary.

Step-Up SIP or Top Up SIP

Increase your SIP regularly to reach your financial goals faster through Step-Up SIP. With the help of Top up SIP, you can top up your SIP by a certain percentage at a regular interval, say every year. The Step-Up SIP amount may depend on the expected increase in yearly income. E.g. if your current SIP is Rs.10,000 and you want to increase the amount by 10%, then your monthly SIP amount for the next year will be Rs.11,000. In the third year, your monthly SIP will stand at Rs. 12,100.  

E.g. let us assume that you are investing Rs.20,000 through SIP. You want to continue investing for 15 years. So, at the end of 15 years and at 12% CAGR, you will accumulate Rs.1 crore.

Lets take another situation where you increase your SIP by 10% every year. In that case, you will invest Rs.20,000 in the first year, Rs.22,000 in the second year, and so on. After 15 years at an expected 12% CAGR, you will build a corpus of Rs. 1.7 crore by investing Rs. 76.25 Lakhs.

Trigger SIP

In trigger SIP facility, mutual fund houses redeem a portion of the investment of the entire investment in one fund to another fund after it activates a certain trigger. NAV trigger, Index level trigger, capital trigger and time-based triggers can be a few types of triggers.

This facility is used by seasoned investors who understand the working of mutual fund and markets. Newbie investors and people who don’t clearly understand the market should not take this facility.

Perpetual SIP

Perpetual SIP does not have a SIP termination date. Typically, investors can opt for 1-year SIP, 5-year SIP, etc. Here, investors have to set up a new SIP after the SIP termination date if they want to continue investing through SIP.  However, in perpetual SIP, investors don’t have to worry about termination date and they can keep on investing as long as required to achieve their financial goals. It is the best option for investors with long-term financial goals.

Conclusion:Systematic Investment Plan (SIP) is a great investment facility for investors looking to achieve financial goals by making regular investments at a predetermined interval. Fund houses offer four types of SIP to make it easier for investors to invest in mutual funds as per their requirement. Flexible SIP, Trigger SIP, Top-up SIP and Perpetual SIP are the four types of Systematic Investment Plan. Contact us to know more.

This blog is purely for educational purpose and not to be treated as an personal advice. Mutual fund investments are subject to market risks, Read all scheme related documents carefully.