By Liam Thomas
A SIP or a Systematic Investment Plan is a great way to invest in the stock market. You make monthly contributions. These contributions are thereafter utilised for mutual fund investments. SIPs guarantee a disciplined approach to investing. Moreover, it also offers the advantage of rupee cost compounding and averaging.
SIP plans are flexible, offering you the option to pick the amount, duration, and type of funds. You can use a SIP calculator to get an estimate of your ROI. You can thereby plan your strategy and finances accordingly. Another major advantage of a SIP is that it comes in different types. There are five main SIP types available in India, each with its individual advantages. This article illustrates each type in detail.
Top-Up SIP
A Top-Up SIP is also known as a step-up SIP. This is when you can increase or ‘Top-Up’ the SIP amount in frequent intervals. Suppose you have a SIP of ₹5000. Your yearly top-up is 10%. Therefore, the SIP amount in the following year will be ₹5500. The basic notion is to increase the SIP amount with your yearly increments. This type of SIP helps grow more wealth. It also offers the scope of investing in funds that are market-linked and performing well. With Top-Up SIPs, you get to acquire a significant amount.
Flexible SIP
The second type of SIP is a flexible SIP. Here, you can increase or decrease the amount as per your cash flow. Emergencies can arise at any time, and you might need to spend a significant amount of money to resolve them. This can lead to a cash crunch and you might not be able to contribute the amount you initially set up for the time being.
With this plan, you can skip some installments until your economic situation stabilises. If your income increases, you can consequently increase the amount. You can adjust the amount depending on the condition of the market. You have to, however, make the changes 7 days prior to the SIP payment date.
Perpetual SIP
The third type, a perpetual SIP, involves periodic investments in a plan you choose for a set period of time. You can choose to not put in an end date. If the space for the end date is empty, then the plan is considered a perpetual SIP plan. You can withdraw the funds during the closing time and fulfil your financial objectives.
Trigger SIP
This type is suited for those with a proper knowledge and understanding of the fluctuations that take place in the stock market. This investment type is also restricted to events in the market. That is only when any investment takes place. For this, a specific date, event, or NAV can be set. This is a plan for on-hand investors.
Insurance Based SIP
The fifth type is an SIP, which is related to a market-linked insurance policy. Here, a part of the insurance premium is directed toward coverage. The other part is used for investment. These are a type of Unit Linked Insurance Plans or ULIPs. They guarantee the combined benefit of wealth growth and insurance.
Conclusion
Knowing the five types of SIPs is essential to know which one to choose. For each one, having a demat account is a must. Then, assess your financial goal and economic status and opt for a plan that aligns with them. The right plan and strategy can promise excellent returns and wealth accumulation.
