What are the types of SIPs and how to choose between them?

What are the types of SIPs and how to choose between them?


One of the efficient ways to make investments in the stock market is through a Systematic Investment Plan (SIP). SIPs have become increasingly well-liked over time due to increased financial literacy and creative marketing initiatives. They also aid in rupee cost averaging because investors make investments across all market cycles. If you also want to add SIP investments to your portfolio, then here are the six different types of SIPs you should know about:

1. Regular SIP

The simplest SIP plans are regular SIP plans. You must regularly contribute to this plan, whether monthly, bi-monthly, quarterly, or half-yearly.You can select the duration, contribution amount, and frequency when you open this SIP online. You cannot, however, adjust your contribution amount after you’ve made your decision.

2. Step-up SIP

You can increase your contributions through a step-up SIP at specific predefined periods. For instance, in a mutual fund plan of your choice, you may begin investing with an SIP of Rs10,000 per month and ask the fund house to grow the SIP amount by Rs 1,000 every six months.

As requested, the SIP amount will be raised to Rs 11,000 per month after the first six months of investing Rs 10,000 per month.To build a larger corpus, you can increase your SIP payment as your income grows.

3. Trigger SIP

Only investors who understand the market dynamics and its movements should use a trigger SIP. This type of SIP allows you to automatically redeem, in full or part, or switch your investment to another fund when it reaches a predefined trigger point.

Any event, such as the fund reaching a specific Net Asset Value (NAV), a positive market development, capital appreciation or depreciation, among others, can be set as the trigger.An advantageous market occurrence, an index level, the fund’s NAV, or a capital gain or loss are a few other examples.

4. Flexible SIP 

A flexible SIP allows its investors to change the size of their initial contribution. However, the notification must be given at least a week before the day the SIP instalment would be deducted. Depending on your financial situation or the state of the market, you can change the size of your SIP.

You can also ask the fund house to halt your SIP until further notice if you are in a financial bind. Similarly, you can ask the fund house to raise the SIP amount for a specified period of time if you have extra money.

5. Multi SIP

Through a single instrument, a multi-SIP enables investors to begin investing in several schemes by one fund house. If you invest Rs1,500 using multi-SIPs, for instance, the money might be divided into three SIPs, each worth Rs 500. It lessens paperwork and assists in portfolio diversification. Your SIPs can be started with just one form and one payment.

6. Perpetual SIP

Typically, when you are filling out the SIP application form, you are required to choose the SIP tenure. But in the case of a perpetual SIP, no tenure is chosen. The investment plan will continue as long as youmakeregular contributions. It only ends when you provide the fund house with a stop instruction. Youcan freely select the perpetual SIP option in the online application if you do not want to limit your contributions with a maturity period.

How to choose the right type of SIP for you? 

SIPs are lucrative investments that allow you to accumulate wealth over time. By investing for the long term, you can make the most of the power of compounding and the benefits of rupee-cost averaging. The type of SIP you should choose primarily depends on your current financial situation. This includes your current income, expenses, how much money you have to invest, what are your other mutual fund investments, etc. For instance, if you are just starting to build your investment portfolio and have a lower investible corpus of say Rs 1,000, you can opt for a regular SIP. Similarly, if you are at that point in your career where your income is consistently increasing, you can opt for a step-up SIP.


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