What is SIP? Types of SIP & How it works?

The Systematic Investment Plan, popularly known as SIP is an investment strategy followed by investors in mutual funds. It is often that a mutual fund trust guides their investors into the SIP route for the best benefit. So the Systematic Investment Plan gives an investor the ease of investing a certain fixed amount monthly or quarterly in a mutual fund scheme. This process of investing saves the investor from parting away a huge amount of money at the start of the investment. The SIP investment amount can be as little as a few hundred rupees which makes it convenient for the investor to avail of this system of investment. Moreover, the investment amount which is a fixed amount can be automatically debited every month or quarterly from the bank account if it is set in that way. However, apart from the convenience of investment, the best part about SIP is that the investor does not have to worry about the market trends and is in a secured zone, free from many risks because of the nature of SIP. It also incurs long-term benefits and is hassle-free and has low risk.

Types of Systematic Investment Plan (SIP)

Flexible SIP: Although SIP is about a fixed amount of investment, nevertheless this category of Flexible SIP gives the maximum flexibility on the amount of investment. Here the investor has to choose the amount of investment at the start of the process. Later just about 7 days from the payment of the installment date, the investor can change the amount of investment, if he so wishes.

Top Up SIP: In this type of SIP, the investor gets a chance to increase the investment. When an investment usually does well in a mutual fund or if an individual grows professionally and as a result wants to increase the monthly investment amount, it is then that many mutual trust fund houses offer such facilities to make a top-up investment change so that the amount increases.

Perpetual SIP: Here, the investor has the option of taking a decision later, at any time, for fixing a particular date for the end of investment in a mutual fund. Till such a decision is taken, the investment goes on as usual.

Trigger SIP: The investor, has the option to choose or take up any SIP or redeem a SIP, whenever the market is in a turbulent condition. The market trends have to be followed very closely to invest in this type of SIP.

Mechanisms of SIP investment

In SEBI registered mutual funds, where an investor has made a SIP investment, a certain amount of fee is charged for the managers who are managing the funds. Moreover, the SIP works through continued and periodical investment. The investor usually receives mutual fund units, which is calculated as per the Net Asset Value of the mutual fund scheme, for the money invested. Now this money can be debited from the bank account automatically every month or a quarter, depending on the decision of the investor.

In Conclusion

In recent years, SIP has been the preferred investment strategy for mutual funds. Without putting a lot of burden on your present financial situation, it lets you save money to meet your future financial goals. All you need to do is use your thorough research when choosing the fund as per your investment horizon and continue paying the necessary amount on a regular basis every month.

Yes! The Systematic Investment Plan investment process is as easy as that.

Leave a Reply

Your email address will not be published. Required fields are marked *