Types of SIPs: Selecting the Best Type of SIP for Your Investment Plans

Systematic Investment Plan (SIP) is a popular, effective and convenient way to invest in mutual funds and thus help create wealth in the long term. Investors can invest in mutual funds through SIP on a daily, weekly, monthly, or quarterly basis. Moreover, there are different types of SIPs as well.

In this article, we will look into the different types of SIPs.

The different types of SIPs are:

1. Regular SIP

Regular SIPs are the most common type of SIP. Here, you invest a specific amount at regular intervals in a mutual fund. The fund house deducts the SIP amount automatically from your bank account which gets credited directly to your investment account.

2. Top-up SIP

Top-up SIP is a step above regular SIP. Here, you can increase your SIP investment at predetermined intervals by a certain percentage, say 10%. So, if your current monthly SIP installment is ₹10,000 and you put in the instruction to increase the SIP amount by 10% every year, then the SIP amount in the following year will increase to ₹11,000 and so on.

Top-up SIP allows you to increase your SIP amount as your income increases which can help you to reach your financial goals faster. Moreover, you are less likely to fall victim to lifestyle inflation, which is the phenomenon of increasing your lifestyle with an increase in income.

If we use the above example and consider an investment horizon of 10 years and an average return of 12%, you can accumulate ₹33.74 lakhs with the top-up SIP. On the other hand, without the top-up SIP, your investment value would grow to ₹23.23 lakhs.

3. Flexible SIP

In life, we go through ups and downs. And, there might be months, when you might not be able to pay the SIP amount, in that case, you can decrease the SIP amount. Later, when things recover, you can revert to the original SIP amount.

This helps you to ensure that you are contributing towards your financial goal.

4. Trigger SIP

This is a sophisticated type of SIP. Here, a trigger event is defined by the investor. It can be a market movement or a predetermined NAV level. The SIP investment takes place when the market reaches the defined market level. This is for experienced investors who understand the market.

5. Perpetual SIP

Nowadays, most SIPs are Perpetual SIPs i.e. it does not come with an SIP end date. The SIP continues perpetually until you stop the SIP. The benefit of perpetual SIP is that you don't have to renew the SIP every few years. 

6. Multi SIP

With multi-SIP, you can invest in different mutual fund schemes through one single SIP. As a result, you don't have to set up different SIPs with different amounts and SIP dates.

For example, if you are investing ₹,9000 a month for one financial goal and you have created a portfolio with three funds for this particular goal. Now, the ₹9,000 SIP will be distributed among three funds and ₹3,000 will be allocated to each of the schemes.

Conclusion

The best type of SIP will depend on your requirements. Do consult a mutual fund distributor or investment advisor before making any investment decision.

The views expressed in this article are of Dharmendra Pandey, Founder & CEO, BIGWALLET PRIME WEALTH LLP.

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