If chosen rightly, investing in SIPs can exponentially grow your finances. Understand five types of SIPs, compare, and choose the right one.
A Systematic Investment Plan is a commonly suggested option to achieve compounded financial growth. With regular automated investment, low starting costs, and scope for diversification, it is an effective plan for a seasoned investor and someone just starting in the financial markets. But all these benefits are available only when you choose the right SIP.
Out of the 5 SIP options, which one is for you? Here’s all the information you need.
What is a Systematic Investment Plan (SIP)?
SIP is a systematic method that allows you to invest a fixed amount of money at regular intervals, typically monthly, into a mutual fund scheme. They are an excellent option for individuals who want to invest in the financial markets but prefer a gradual and consistent approach rather than a lump-sum investment.
It is a highly favourable investment option since it allows you to start with small investments with an opportunity to increase them over time while enjoying the benefits of annual returns.
What are the five types of SIPs?
Regular SIP
The regular SIP is the bread and butter of mutual fund investments, where you invest a fixed amount at regular intervals, be it monthly, bi-monthly, or quarterly. It is straightforward – set your duration, instalment amount, and frequency. Once you lock in these parameters, they remain fixed throughout the investment tenure.
Top-up SIP
The top-up SIP, or step-up SIP, is designed for those who wish to opt for incremental growth. It allows you to increase your SIP amount periodically. As your income grows, so does your investment, giving you the advantage of compounding and the reduced effect of inflation upon maturity.
If you start with Rs 10,000 and decide to increase it by Rs 1,000 according to a 10% top-up rate, your SIP amount for the coming year would be Rs 11000. A top-up SIP allows you to reach your financial goals sooner than a regular SIP.
Perpetual SIP
Similar to a regular SIP, perpetual SIP is for those with a long-term perspective but with no decided tenure for maturity. By not specifying a tenure during the application process, you allow your SIP to continue until you decide otherwise. This option gives you the freedom to observe the market, make decisions based on your investment goals, and redeem your funds anytime.
Trigger SIP
Trigger SIP demands market expertise. You set triggers related to market events, index levels, or capital appreciation to initiate actions like starting, redeeming, or switching your SIP. This advanced strategy is suitable for experienced investors who can navigate the nuances of market dynamics.
Multi SIP
Multi SIP streamlines your investments, allowing you to invest in multiple schemes of a fund house through a single instrument. It’s an excellent way to diversify your portfolio without drowning in paperwork. If you invest in 5 schemes with a sum of Rs 10,000, each scheme gets allotted Rs 2000.
How to choose the right SIP for you?
Now that you know the varieties, the million-dollar question is, which one suits you best? Let’s break it down:
- Regular SIP: Ideal for stable income and those seeking a secure future.
- Top-up SIP: Also Ideal for stable income. Accelerates wealth creation.
- Perpetual SIP: Suited for long-term investors with no specific exit plan.
- Trigger SIP: Advanced option for investors with market expertise.
- Multi SIP: Simplifies portfolio diversification for those who prefer a unified approach.
How do regular SIPs and top-up SIPs affect your investment?
Let’s crunch some numbers to illustrate the impact of your SIP choice. Assume you aim to accumulate Rs 15 lakhs in 10 years with an expected annual return of 12%.
- Regular SIP: Monthly investment of Rs 5,000 for 10 years yields a maturity corpus of Rs 11,61,695.
- Step-up SIP: The same initial investment but increasing by 10% annually results in a maturity corpus of Rs 16,87,163.
The step-up SIP not only reaches the target faster but also helps combat inflation, increasing the real return on your investment.
Here’s a quick comparison
As you embark on your SIP journey, remember that the best SIP for you is the one that aligns with your financial aspirations. Evaluate your goals, understand your risk appetite, and choose wisely.
Need professional help? Geojit is here for you. A trusted partner in investment services, Geojit helps you choose from a diverse array of investment options, guiding you towards a wealthier future. Reach out to us today!
