What are Different Types of SIPs?

In today’s world if you want to create a financial cushion to get closer to your short term, medium term or long term financial goals then you may have to excel at financial planning. If you have a defined set of financial goals and know exactly what it is that you want to achieve, then you may be able to make the right investment decision. Apart from having a defined set of goals, it is also necessary for an investor to understand his risk appetite. A risk appetite is nothing but an individual’s to understand how much risk they are willing to take and invest in a scheme whose risk profile matches with their risk appetite. Every investment scheme carries a different risk profile depending on that an investor should decide where and how much to invest their money.

There are some individuals who have zero risk appetite and do not wish to take risk with their finances. Such investors usually settle with schemes that offer low fixed interest rates. However if you are someone who is willing to take some added risk and give your investment portfolio an aggressive approach, you may consider investing in mutual funds.

What is a mutual fund?

Mutual funds are a proof of professionally managed funds that collect money from investors sharing a common investment objective and invest this pool of funds across the Indian economy in multiple asset classes like equity, debt, cash, bonds, etc. Mutual fund investors receive shares in the form of units depending on the quantum of money invested and depending on the fund’s existing NAV.

SEBI, the regulator of mutual funds in India defines them as, “a mechanism for pooling the resources by issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in the offer document. Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is reduced. Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at the same time. Mutual fund issues units to the investors in accordance with the quantum of money invested by them. Investors of mutual funds are known as unitholders.”

While investing in mutual funds, there are usually two payment options - you can either make a lumpsum payment or you can opt for SIP investment.

Lumpsum investment as the name suggests, is making the payment towards the mutual fund investment all at one. Usually you make a lumpsum payment in mutual funds right at the beginning of the investment cycle. Investors get allotted more number of mutual fund units in quantum with the money invested and depending on the fund’s existing NAV.

SIP, on the other hand, is an investment method for anyone who is wanting to give their mutual fund investments a systematic approach. Systematic Investment Plan (SIP) is an easy and hassle free investment approach which is generally considered by investors who wish to build a corpus through long term investment. With SIP all one has to do is be KYC compliant, and they can start an SIP in mutual funds by visiting the website of a fund house or an AMC and selecting the SIP option while investing in funds. The investors need to instruct their bank to allow auto debits and every month on a predetermined date, a fixed amount is debited from your savings account and electronically transferred to the mutual fund.

This was your typical SIP. Apart from this, there are four other SIP investment options currently available in the market which retail investors can make the most out of. Here they are:

Perpetual SIP: Perpetual SIP is a type of SIP that aims to target an investor’s long term investment goal. With perpetual SIP, an investor can continue investing in mutual funds via SIP for as long as they want. Perpetual SIPs do not come with a termination date and one may continue investing till their investment objective is achieved.

Top up SIP: If the mutual fund you invested in is performing well and you want to increase the amount you are paying at systematic intervals, then some fund houses the option to top up that SIP amount. This type of SIP investment is referred to top up SIP.

Flexible SIP: Some individuals have irregular cash flow and flexible SIP helps such investors by allowing them to increase or decrease the monthly investment amount depending on their financial situation.

Trigger SIP: Trigger SIP is generally considered by seasoned investors who possess in depth knowledge about mutual fund investment and market volatility. Anyone who is new to investing should try and avoid this type of SIP investment.

Now that you are aware about different types of SIPs, which is going to be your choice of SIP investment? Download our SIP app to find and select the SIP that suits you best!

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.