Types of SIPs in Mutual Funds that helps you to grow money
SIPs in mutual funds are one of the best investment options for investors. Mutual Funds SIP is where one can invest a fixed amount for a pre-defined period. This is what we know. However, there are various types of Systematic Investment Plans (SIPs) in Mutual Funds in India, where investors can understand them and benefit from their features. What is Systematic Investment Plan in Mutual Funds? What are various types of Systematic Investment Plans (SIPs) in Mutual Funds?.
What are SIP’s in Mutual Funds?
If you are already aware, skip this section.
SIP stands for Systematic Investment Plans. As the name suggests, it is a planned and systematic investment in which the investor invests a predetermined, small sum of money at regular intervals. These investments are done in mutual funds. These intervals can be weekly, bi-monthly, monthly, quarterly, half-yearly or annually.
When you initiate a SIP, the amount you pay is allocated towards buying certain units of the mutual funds. When money is paid in the next interval, another set of mutual fund units for the mutual fund scheme is purchased and added to the current units. This way, mutual funds are purchased and added to your portfolio, giving you the benefit of compounding and rupee-cost averaging.
You can watch this video to understand Mutual Funds SIPs.
Video Credit: SBI Mutual Funds
7 Types of SIPs in Mutual Funds that helps you to grow money
Owning to investors interest, there are different types of SIPs being floated by AMC companies.
#1 – Regular SIPs
Under traditional SIPs, an investor is required to invest a fixed sum of money at regular intervals. The start and end date of the SIP are pre-determined and the amount of investment to cannot be changed. The time interval has to be chosen by the investor at the beginning of SIP and generally, it is daily, weekly, bi-monthly, monthly or quarterly (in some cases, it may be half-yearly of annually). My advice is not to go for daily or weekly SIPs. Salaried employees can stick to monthly SIP and business men can invest by-weekly or monthly SIPs if required as their income fluctuates.
#2 – Trigger SIPs
This type of investment is ideal for those investors who have a deep understanding of the capital market. They set a particular NAV, event, index level or a particular date for starting their SIP. This trigger can have set instructions as to when and how the action is to be performed on behalf of the investor. For instance- an investor can set to sell units of mutual funds once the NAV hits a particular high number or to buy units when NAV goes below a certain low level. Here are a few scenarios
a) NAV appreciation or depreciation trigger based on the specific NAV value (e.g. One is investing in SIPs and current NAV could be Rs 12 and the trigger facility is that if NAV reaches Rs 20, all ships have to be sold or switched to another fund)
b) Index level appreciation or depreciation trigger based on specific Index levels (e.g. SENSEX is at 37,000 and if SENSEX reaches 45,000 or 35,000, all funds can be redeemed or switched to another fund)
c) Capital appreciation or depreciation trigger based on capital reaching a certain level (e.g. if the investment is Rs 1 Lakh and trigger facility could be that if capital is appreciated to Rs 1.5 Lakhs, then redeem all funds or switch to another fund).
My advice is to use Index level appreciation (if opted) to just ensure that SENSEX/NIFTY is not overheated and may take some correction.
#3 – Perpetual SIP plan
Under this plan, an investor starts the SIP but his end date is not determined. He begins it with a predetermined tenure, but can extend it beyond that. In this case, he leaves the column of ‘end date’ blank. This type of investments gives the freedom to the investor that he can redeem the fund when his financial goal is achieved. He is not time-bound.
E.g. Mr.Rajesh invests in the perpetual SIP Plan from 1-May-2019 for Rs 1,000 per month without an end date. As and when he want he can cancel the SIP or cancel and redeem the mutual fund units.
My advice is that one should use this feature so that we don’t need to create them again and again when you want to invest in such funds. Alternative you can create SIPs in mutual funds on solution based approach.
#4 – Flexible SIPs
This SIP gives the investor an option of increasing or lowering the SIP amount depending upon their cash-flow. The investor is given an investment range, which has a minimum amount and maximum amount. The investor can invest any amount in the range depending upon his financial situation. This type of SIP is suitable for those who witness high fluctuations in their income level. You can even opt for stopping the SIP payment for a few months if you are facing cash-crunch or increase the amount of SIP if you have sufficient funds. Even you can opt to increase SIP value when stock markets are falling. Here is one example on how one can get benefitted by investing higher amounts in falling markets.
#5 – Top-up SIPs
In this, the investors are given the option of raising their SIP amount at fixed intervals. Such plans offer the investors an opportunity to invest more in the mutual funds that are performing well. Moreover, the investors are able to accumulate huge corpus by raising the investment amount at regular intervals.
e.g. SBI Mutual Funds offer top up SIPs with certain conditions. One can do top-up for Rs 500 or multiples of Rs 500.
#6 – Life insurance with SIP
Such type of SIPs provides free life insurance cover to the investors. Many mutual fund houses like Reliance, Birla Sun Life, ICICI offer an additional and optional feature of insurance with its all or selected equity mutual fund schemes. The amount of insurance depends upon the SIP amount and the term of SIP. The investor has to be very cautious while choosing such plans because there are many conditions attached to such schemes. Here are some of the Mutual Fund SIPs offered with free insurance
a) Birla Mutual Funds Century SIP
b) ICICI Prudential SIP Plus
c) Reliance Mutual Funds SIP Insure
My advice is to keep insurance and investment separate. You can still check our review about Mutual Funds SIP with free insurance article where we have provided several hidden factors in such feature.
#7 – GPrS SIP
AMCs come with unique names to attract mutual fund investors. Edelweiss Mutual Funds have come up with GPrS SIP / Goal Progression SIPs where one can invest based on achieving a goal and specific amount. AMC would share you with regular updates on where you are standing and how far you are from achieving your goal.
In my view, this is one of the wonderful feature to track your dream goals.
Conclusion: Understanding the various types of SIPs in mutual funds, would help investors to fully utilize their features.
Happy investing in SIPs of mutual funds!!!
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Types of SIPs in Mutual Funds that helps you to grow money