Different Types of Systematic Investment Plans and Their Benefits

A Systematic Investment Plan (SIP) is among the go-to investment plans for investors seeking gradual yet lucrative returns through mutual fund instruments. SIP investment has the key advantage of helping you, especially if you are a small and risk-averse investor, to grow your wealth into a corpus by investing small sums of money. What some investors may not know is that this kind of versatile investment includes different kinds of plans that can match investment goals, aiding you in fulfilling your financial objectives faster. This article sheds light on different SIPs, their working, and resulting unique perks for investors.

What is a SIP plan?

A SIP investment is a way to invest in a mutual fund scheme, rather than an actual investment instrument. The great part of a SIP is that you can invest small amounts of capital at regular and frequent intervals, in a variety of mutual funds. For those who wish to invest small amounts at intervals, rather than a lump sum upfront, a SIP may be an option.

Some of the best SIP plans efficiently minimise your risk in investment as they let you purchase mutual fund units in regular instalments so that you spend less in your investment, in general. Hence, SIPs are very popular as they prove to be among the most affordable methods to invest in mutual funds. For instance, investors who invest a set amount at fixed intervals automatically tend to make the most of market volatility and remove the bother about timing the market. Consequently, a SIP works in a way that allows potential gains even when there are movements in the market.

What are the different types of SIPs and when to choose them?

A SIP is a proficient method of investing in a mutual fund, rather than a financial instrument. A SIP brings discipline in investment as you must save and invest a fixed amount at intervals decided in advance for a particular tenure. Besides these clear benefits of a SIP investment, you also get to choose from a range of SIPs that have distinct features matching unique financial requirements. These different types are expressed below:

Regular SIP: Among SIP investment plans, the regular SIP stands to be at the top in the popularity charts. This lets you make set investments on a monthly basis, and for a predetermined tenure. You can consider this kind of SIP when you wish to take advantage of rupee cost averaging and ride the volatility of the market. These SIPs are also selected as they bring a certain disciplinary approach to investment, forcing you to invest a fixed amount at a particular time.
SIPs Based on Tenure: An investor may choose a SIP when they have a specific time horizon for investment in mind aligned with their risk appetite and financial aims. Therefore, SIPs that are maintained for a particular period like 3, 5, or 10 years, fall within this kind of SIP category. In this case, the tenure of the SIP remains fixed and cannot be changed once the scheme is begun.
Combination SIPs: SIP investment can invest your money in different kinds of financial instruments like debt and equity. In a combination SIP, you have the option to invest in a mutual fund with a blend of debt and equity instruments. The ratio of investment in these instruments is pre-planned and you can go in for such an investment when you wish to have a balanced investment scheme and diversify your portfolio to manage your risk.
Multi SIPs: As the name suggests, this kind of SIP constitutes plans that invest your money in multiple mutual fund schemes with different risk characteristics. The ratio of investment is predetermined, and you can invest in these types of SIPs when you wish to explore different risk-oriented funds based on your financial goals.
Trigger SIPs: Among the types of SIP schemes, you can choose those that are designed to specifically kick in when certain market conditions get triggered. Therefore, the SIP investment is only made when a certain market condition occurs, like say, when the market drops by a pre-specified percentage. Through such SIPs, investors gain a disciplined method of investing, yet aid investors in making the most of opportunities in the market.
Step-up SIPs: Step-up SIPs permit investors to increase the amounts invested in a SIP at regular periods. Investors may choose to opt for this kind of SIP when they know they will be able to increase their SIP amounts, say every quarter, or on a six-monthly basis. Therefore, such a SIP is chosen to benefit investors as their savings or income increase.
Flexible SIPs: In a flexible SIP investment, an investor is permitted to modify their SIP investment according to changes in market conditions. This means that investors can invest small amounts when markets appear on a downward trend, and increase investment amounts when the markets see an uptick. When investors want to mitigate their risk, they may choose this kind of a SIP.

Which is the best type of SIP?

Among types of mutual fund SIPs, there is no real ‘best type’. The best type for one investor may not be the most prospective for another. Investment in any financial instrument or method of investing depends entirely on the individual investor who has unique requirements and financial goals. Therefore, different types of SIPs cater to distinct needs, not to mention differences in investors’ risk profiles. For instance, a beginner or small investor may not be comfortable with a multiple SIP plan and may prefer a flexible SIP or a combination SIP, as these two allow investors to allocate smaller amounts to plans (and permit gradual increases if needed), and permit balanced investment to some degree.

Conclusion

SIP investment is one of the preferred methods for investing in mutual fund schemes today. With an array of types of mutual funds and SIPs, anyone from a beginner to a senior citizen can find a SIP suited to their personal financial requirements and individual goals. A SIP is a possible way to invest in the markets and manage your risk, growing your wealth slowly, yet surely. There is no excuse not to invest in a SIP today!

SIPs let you invest small amounts regularly, making it easier to stay consistent with your goals. With time, your money grows faster through compounding, helping you get the most out of your investments. Try our SIP Calculator to see how your money can grow and make smarter plans for your future.

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FAQ

Is a SIP 100% safe?

While there is no 100% safe investment, a SIP can manage your risk in investment (to some extent) depending on the type of SIP you choose. SIPs are a way to invest your money in mutual fund schemes that invest in different asset classes. You may choose debt-focused funds to minimise your risk (relative to equity-oriented mutual funds), but even with these, you may not be potentially without any risk. Relative to traditional instruments like a fixed deposit, a SIP may be more risky as it invests in market-related instruments.

Is a SIP better than an FD?

If you are an investor searching for an investment that gives you high gains, a SIP may be an option to consider. However, a SIP may also offer more risk than a conventional fixed deposit where returns are assured based on your investment amount. Still, SIPs are known to outperform traditional instruments like FDs for long-term growth of wealth.

Can a SIP go in loss?

It is possible that SIPs may result in losses as they invest your money in market-related assets like stocks. The risk of any given SIP is based on the asset class of the mutual fund and the performance of the market. Therefore, during market downturns, you may not get potentially positive returns, but in the long term, markets are prone to do well and give you substantial gains.