A systematic Investment Plan (SIP) is a popular investment option in India that allows individuals to invest a fixed amount regularly in mutual funds. SIPs provide an easy and convenient way to invest in the stock market and help investors benefit from the power of compounding. However, with the increasing number of mutual funds and different types of SIPs available, it can be challenging for investors to choose the right plan that suits their investment objectives. This article will demystify the different types of SIPs and how they work.
Types of SIPs
Tenure-based SIPs
Tenure-based SIPs are SIPs that are designed to run for a specific period, such as 3 years, 5 years, or 10 years. Investors can choose the tenure of the SIP based on their investment objectives and risk profile. The amount invested in a tenure-based SIP is deducted regularly, just like a regular SIP. However, the tenure is fixed, and investors cannot modify the duration of the SIP once it is set.Multi SIPs
Multi-SIPs allow investors to invest in multiple mutual fund schemes simultaneously. A multi-SIP splits the investment amount among different schemes in a pre-decided ratio. Multi-SIPs allow investors to invest in different schemes with varying risk profiles and investment objectives.Combo SIPs
Combo SIPs are SIPs that invest in both equity and debt instruments simultaneously. In a combo SIP, the investment amount is split between equity and debt schemes in a pre-decided ratio. Combo SIPs provide investors with a balanced investment option that offers capital appreciation and income generation.Flexi SIPs
Flexi SIPs allow investors to invest various amounts in a mutual fund scheme based on market conditions. In a Flexi SIP, the investment amount is not fixed, and investors can vary based on market conditions. For example, investors can invest a higher amount when the markets are down and a lower amount when the markets are up.Step-up SIPs
Step-up SIPs are SIPs that allow investors to increase the investment amount at regular intervals. In a Step-up SIP, the investment amount increases by a pre-decided percentage at regular intervals, such as every six months or every year. Step-up SIPs allow investors to increase their investments over time as their income and savings increase.Trigger SIPs
Trigger SIPs are SIPs that are designed to invest in mutual fund schemes based on specific market triggers. In a trigger SIP, the investment is made when a particular market condition is met, such as when the market falls by a certain percentage. Trigger SIPs give investors a disciplined approach to investing and help them exploit market opportunities.How do SIPs work?
SIPs work by regularly investing a fixed or varying amount of money in a mutual fund scheme of your choice. The investment amount is deducted automatically from your bank account on a specified date every month. This date is popularly known as the SIP date.Benefits of investing in SIPs
Power of Compounding:
SIPs allow investors to benefit from the power of compounding by reinvesting the returns earned on their investments.Rupee Cost Averaging:
SIPs help investors average out the cost of their investments over time, reducing the impact of market volatility.Disciplined Investing:
SIPs encourage disciplined investing by regularly investing a fixed or varying amount, irrespective of market conditions.Flexibility:
SIPs offer the flexibility to start, stop, or modify your investments based on your investment objectives and financial situation.Diversification:
SIPs allow investors to diversify their investments by investing in multiple mutual fund schemes with varying risk profiles and investment objectives.Conclusion
SIPs are a popular investment option in India that offers investors an easy and convenient way to invest in mutual funds. With different SIPs, investors can choose a plan that suits their investment objectives and risk profile. Whether you are a new or seasoned investor, SIPs can help you achieve your financial goals by investing regularly and benefiting from the power of compounding. However, before investing in any SIP, it's essential to do your research, understand your investment objectives, and choose a mutual fund scheme that aligns with your investment goals. With the right investment strategy and discipline, SIPs can help you build long-term wealth and achieve your financial aspirations. Mutual Fund Calculators:| SIP Calculator | Lumpsum Calculator |
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FAQs
Is SIP 100% safe?
While no investment is 100% safe, whether is SIP safe depends on asset class. SIP invests in mutual funds which carry SIP risk influenced by underlying assets, whether debt or equity, unlike guaranteed returns from traditional savings.
Is SIP better than FD?
Comparing SIP vs FD, SIPs potentially offer higher returns than fixed deposits (FDs), especially in a rising market. While FDs provide stability and guaranteed returns, SIPs can outperform in long-term wealth creation.
Can SIP go in loss?
Yes, SIPs can incur losses if they invest in market-linked instruments. The SIP risk depends on the asset class and market performance; hence, negative returns are possible during downturns, although historically, markets tend to rise over the long term.
