Systematic Investment Plan (SIP) is a smart mode of mutual fund investment which allows individuals to invest pre-determined amounts at regular periodic intervals. It is a well-planned approach towards investments and helps individuals save wealth for the near future. SIPs have become one of the more popular investment options among investors. Here’s all you need to know about investing in SIPs.
What are the different types of SIPs?
SIPs have gained enormous popularity over the last decade, particularly due to the convenience, financial discipline and safety they provide. There are four different types of SIPs in which you can invest. Here is a brief introduction to these SIPs.
Top-up SIP: So, you got a raise and have already invested in a MF that is performing well? How about increasing the SIP amount, if not every time, then at regular intervals? This plan increases the amount of your contribution at regular intervals and enables you to benefit from the mutual fund scheme that is performing well. With a rise in your income, you can invest a higher amount. You have the advantage of making the most of an increased income as well as a good MF scheme!
Flexi Systematic Investment Plan: Here, whether monthly or daily, you have the choice to pay different SIP amounts every time. This gives you, as the investor, an advantage of not being bound to pay a certain amount every month or daily but decide according to your cash flow at the time of payment. Thus, in case you have a cash crunch you can skip the instalment. However, it is not recommended unless you understand the market conditions and invest accordingly.
Perpetual SIP: Keep paying SIPs without an end date. Not for a year, 3 or 5 years, but keep going till you wish! If you opt for this scheme, you have the option to redeem the fund at a time of your choosing. However, this scheme is generally not recommended, as having an end-date teaches financial discipline and promotes a goal-based approach, which eventually leads to financial satisfaction.
Trigger SIP: This is for the ones that are aware! If you understand markets well, then this type of SIP gives you the option to use that knowledge. You can set a NAV or index level or event or a particular date to start payments for this type of SIP. Trigger SIP encourages speculation and is therefore not desired by many.
How to Invest in SIPs?
It is crucial to know the objective of your investment. You must choose the mutual fund scheme accordingly. As per the concept of SIPs, your payments towards the mutual fund will be auto-debited. Therefore, you get to pick a date for the same. Here are some choices to consider:
Monthly Systematic Investment Plan: A monthly systematic investment plan is often recommended for salaried individuals. You can choose a payment date between the 1st and 10th of each month, where the amount for your investment will get auto-debited from your account.
Daily Systematic Investment Plan: Though it seems unfeasible for most, it may work well for individuals involved in the micro segment of the economy. In daily systematic investment plans , a small sum is auto-debited from your account daily and is invested in the market. It operates like other mutual funds, wherein, the disbursement and money are handled by the fund manager.
Choose the offline or online option to manage your mutual fund and make payments towards it.
To get the maximum out of your SIP, stay invested in the mutual fund till the end of the period. Along with financial discipline, SIPs can also give you good bank balance over long-term.
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