Types of SIP Plans

What is a SIP Plan?

Systematic Investment Plans (SIPs) are a popular investment option in India that allows you to invest a fixed amount of money in a market-linked investment fund at regular intervals. The best SIP plan in India inculcates a disciplined approach to investing and helps you achieve your long-term financial goals.

• Regular & Automated: Invest fixed amounts at chosen intervals (monthly, quarterly) automatically.

• Start Small: Invest with low amounts, making it accessible.

• Rupee Cost Averaging: Benefit from buying more units at lower prices, balancing investment costs.

• Flexible: Adjust SIP investment amount, frequency, or pause contributions as needed.

• Long-Term Wealth: Build wealth through compounding over time.

• Potential Tax Benefits: Enjoy tax benefits on Unit Linked Insurance Plans (ULIP) and Equity Linked Savings Scheme (ELSS) investments.

SIP Calculator

A SIP calculator is a tool that helps you estimate the returns on your investment in a market-linked investment fund through a Systematic Investment Plan (SIP). It considers factors like your monthly SIP amount, investment tenure, and expected rate of return.

SIP calculators are helpful for you in the following ways:

• Plan your finances

• Understand how much you can accumulate through regular SIP investments

• Decide the SIP amount you need to invest to achieve your financial goals.

Types of SIPs

It may be surprising to know that there are six different types of best SIP plans in India available in the market. Let us take a look at them:

1. Top-Up SIP

   Top-up SIP plans allow you to increase the SIP amount at regular intervals. These plans provide an advantage in investing in market-linked funds that are performing well in the market. Moreover, by increasing the investment amount at regular intervals, you can accumulate a huge corpus to achieve your financial goals.

2. Perpetual SIP

   In Perpetual SIP, you can invest periodically in a market-linked SIP investment plan of your own choice every month for a predetermined tenure. While signing up for the SIP mandate, you have a choice not to enter the end date in the SIP mandate.

   If the column is blank, it is considered to be a perpetual SIP. This provides an option for you to redeem the fund at the time of closing and achieve the financial goal. As the best SIP plans are specifically designed to instill the habit of financial discipline and promote a goal-based approach, it is always advised to start SIP for a fixed period. 

3. Flexible SIP

   This is a type of SIP plan that provides an option to decrease or increase the SIP amount according to your cash flow. So, in case you face any type of cash crunch due to any reason, then you can skip paying a few installments of SIP till your financial situation normalizes.

   Similarly, you can increase the SIP amount if you receive a bonus or make some gains. While investing in flexible SIP, you will have to stipulate a fixed amount of investments. The plan provides an option to change the investment amount of that month 7 days before your SIP date.

4. Trigger SIP

   This option is beneficial for those investors who are aware of the market volatility and who have a proper understanding of the financial market. To start this SIP, you can set an index level, event, NAV, or a specific date.  

   However, it is advised not to opt for trigger SIP as it incites speculations. It is always advisable to choose a long-term tenure to foster your financial goals.

5. Multi SIP

   Multi SIP allows you to invest in multiple Systematic Investment Plans (SIPs) within the same market-linked fund or across different funds. This enables diversification across various schemes or fund houses, helping spread risk and potentially enhance returns.

6. Insurance-based SIP

   Insurance-based SIP refers to investing in a market-linked insurance plan where a portion of the premium is allocated toward insurance coverage and the remaining towards market-linked investment funds. ULIP-based SIPs offer the dual benefit of insurance protection along with wealth creation through market investments.

Which is the Right Type of SIP for You?

Choosing the right SIP depends on your needs, income, and financial goals. For most people with regular income, a regular SIP is a solid choice. If your income tends to increase over time, a step-up SIP might be more beneficial, aiming to build greater wealth as your earnings grow.

Let us have a look at the comparative analysis:

Knowledgeable investors who read market trends can potentially earn higher returns by leveraging market fluctuations. Here is a quick analysis:

• If you lack a specific financial goal or timeline, a perpetual SIP might be suitable. 

• For those interested in diversifying investments within a single fund house, a multi-SIP offers flexibility. 

• Lastly, SIPs with insurance plans cater to investors seeking both wealth accumulation and life coverage. 

Each type serves different needs, ensuring there is an ideal SIP for everyone.

Benefits of a SIP Plan

Some of the key benefits of investing in a SIP plan are listed below:

• Disciplined Savings: SIPs encourage regular saving by automating fixed investments.

• Rupee Cost Averaging: Reduces investment risk by buying more units when prices are low and fewer when high.

• Convenience: Automated deductions make SIP investing straightforward.

• Affordability: Start investing with small amounts.

• Compounding Benefits: Earn returns on both principal and accumulated earnings.

• Diversification: Spread the risk by investing in various assets.

• Flexibility: Adjust investment amounts as needed.

• Lower Risk: Spread investments over time, reducing market timing risk.

• No Market Timing Needed: Invest consistently without timing market highs and lows.

• Tax Benefits: Some SIPs offer tax advantages like ELSS and ULIP under Section 80C.

How to invest in SIP?

The general steps to how to invest in a SIP plan in India are listed below:

• Define Goals: Clarify your financial objectives (e.g., wealth creation, retirement planning).

• Choose Fund: Select a mutual fund based on risk tolerance, investment horizon, and goals (e.g., equity, debt).

• Complete KYC: Ensure your KYC is completed by the mutual fund company.

• Fill out the SIP Form: Complete the SIP application form online or through the distributor.

• Set Auto-debit: Provide bank details for automatic SIP deductions on chosen dates.

• Monitor Regularly: Keep track of SIP performance and review periodically for adjustments.

Wrapping it up!

Even though these SIP plans provide flexibility and convenience, your key objective should be to stay invested in SIP for a longer tenure and avoid any short-term financial limitations. Thus, you can achieve your long-term and short-term goals by making a disciplined and smart investment.