K. ARAVIND
There is a growing awareness among investors that Systematic Investment Plan (SIP) is the best way to invest in mutual funds. The recent trend is for investors to pay more attention to investing through SIPs. Half of the fund houses’ SIP accounts have been in operation for more than five years. However, there is limited knowledge among investors that there are different types of SIPs besides the monthly investment plan.
Most investors opt for a SIP that invests a certain amount on a specific date each month. This plan is the most popular. At the same time, there are different types of SIPs currently in the market. These plans can be selected according to the nature of the investor.
Monthly SIP is generally suitable for monthly income earners. Since the salary is paid on a fixed date every month, a certain amount of it goes to the deposit on the due date, which makes the investment planning convenient for the monthly earners. At the same time, if investors adopt the practice of investing on their own every month, it may not be able to move forward smoothly due to unforeseen costs and so on. Current trends and fluctuations in the market may also influence the investor.
This is where SIP comes into play. SIPs are able to streamline the investment process every month, regardless of market conditions. SIP enables investors to practice financial discipline, reduce the average return on investment and achieve higher returns.
Let us see what are the various types of SIPs.
Daily SIP: There is a SIP that invests every day. But it is better to avoid daily SIP as many entries will complicate your investment. There are SIPs that invest on a quarterly and half yearly basis. But these are not enough to achieve the goal of reducing the average investment cost from market volatility.
‘Endless’ SIP: There are some other plans that are worth investing in. One of them is a SIP in which the investor invests regularly without setting an expiration date. The plan is such that the investor can terminate the SIP once he has achieved his goal. The Fund House must be notified in writing to terminate the SIP. This plan can be chosen by those who are investing to achieve long term goals.
SIP Top-up / Step-up: A plan that increases the monthly amount invested under SIP every six months or one year is also suitable for monthly earners. This plan will help you to increase the SIP amount as your salary increases every year. Some fund houses refer to this method as a top-up plan, while others refer to it as a SIP booster or SIP step-up plan.
Most major fund houses offer this facility to investors. The minimum amount for top-up should be Rs.500. The top-up amount can only be determined in multiples of Rs.500. The SIP amount can be increased by a certain amount or a certain percentage after the period prescribed by the investor. Investors need to constantly increase their investment in mutual funds every year to overcome inflation. The advantage of SIP Top-up is that this is implemented it automatically.
Flexi SIP: Flexi SIP is a plan that allows investors to reduce or increase the SIP amount as and when required. This plan helps in determining the investment amount according to the amount of money coming into the hands of the investor.
Alert SIP: Alert SIP is an investment plan that is subject to market fluctuations. For example, when the Sensex falls by 500-1,000 points or two to five per cent, investors will be notified and will be able to invest accordingly. This plan is suitable for market observers.
