What are the different types of SIPs and which one should you choose?

Of the various modes of Investment available to any investor in India today, a m Systematic Investment Plan or an SIP is one of the most popular. The reason for this is not just the convenience of following a systematic Investment plan but also its profitability over time. Let us look at the different types of SIPs in this article and understand their differences and the benefits of opting for a SIP Investment. 

What is an SIP? 

Mutual fund Investments offer the provision of opting for a ‘Systematic Investment Plan’ or SIP to their investors. With this, the investors can make regular Investments in the mutual fund in a systematic manner. This allows the investor to maintain discipline while investing and also earn better returns, depending on the mutual fund that they chose. Let us look at the various types of SIP options to understand the procedure of investing through SIPs in the next section. If you wish to calculate your SIPs in advance, head straight to IDFC FIRST Bank’s SIP calculator!  

What are the different types of SIPs? 

There are six major types of SIPs, each of which is explained in detail below: 

1. Regular SIP
 

• Regular SIPs are the simplest modes of investing in a mutual fund. If you have opted for Regular SIP in a mutual fund Investment, you must invest a fixed amount at regular intervals for a certain period to earn good returns from the mutual fund scheme. 
• Regular SIPs can be monthly, bi-monthly, quarterly, or half-yearly. You can also opt for a weekly or daily Regular SIP. 
• Investors cannot change the Investment amount during the tenure of their mutual fund Investment if they have opted for a Regular SIP.

2. Top-up SIP
 

• By opting for a top-up SIP, you can gradually increase your Investment income after every periodic SIP Investment. 
• Investors who are looking to earn higher returns by investing a higher income can gradually opt for a top-up SIP. The top-up SIP Investment mode helps investors build a larger Investment corpus fast. 
• You can also choose to increase your SIP by ₹500 periodically, an option that is convenient for a large section of investors. 

3. Flexible SIP
 

• Also called “Flexi SIPs” or “Flex SIPs,” in short, flexible SIPs offer flexibility to investors in terms of being able to alter the Investment amount. This type of SIP is suitable for investors who would want to change their SIP amount based on market conditions or personal financial conditions. 
• The Asset Management Company must be apprised of the change in the SIP amount and the Investment amount at least a week before the deduction date of the SIP instalment. 
• Flexible SIPs also allow investors to vary their SIP contributions based on the market’s volatility. You can choose, for example, to invest lesser when the market seems very volatile to you and invest more when the markets are riding a high tide.

4. Perpetual SIP
 

• The function of perpetual SIPs is very well captured in their name – these are SIPs that can go on until you ask the Asset Management Company to stop your Investment. 
• If you do not mention a specific period while signing up for a mutual fund scheme, most Asset Management Companies consider the type of SIP to be a perpetual SIP. 
• By choosing the perpetual SIP option, you can stay invested in a scheme for as long as you choose and observe the market. 

5. Trigger SIP
 

• If you are an experienced investor who has a good understanding of the volatility of the market, including a knack for correctly estimating its future ebbs and flows, you can opt for the trigger SIP option. This option allows you to set a “start SIP” date at the beginning of an event and then choose to “redeem” or “switch” their SIP after the event occurs.

6. Multi SIP
 

• Asset Management Companies also allow investors to start investing in multiple schemes of a fund house through a single SIP Investment. This type of SIP is called a Multi SIP.
• Multi SIPs also help investors diversify their Investment portfolio. 

 So, which type of SIP must you choose? The answer would differ for different investors since the risk-taking capacity and Investment goals of every individual are different. However, you must be aware of the various features of each type of SIP to be able to make a better decision. Feel free to revert to this article to understand the various types of SIPs in India. 

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.