Mutual Funds: What are the different types of SIPs - flexi, step up, multi, combo and tenure-based?

Investing in a mutual fund scheme, particularly equity, can be complicated for a lay investor. It's not easy to zero in on the right time to enter a mutual fund scheme because of the ongoing volatility. Wealth advisors, therefore, point out that the best way to invest in a mutual fund is via SIP (systematic investment plan).

Lately, SIPs have become extremely popular among retail investors, thus pushing the overall asset size of mutual funds upward.

There are now about 9.61 crore SIP accounts through which investors invest in the mutual fund schemes. And the total money collected through SIP during August 2024 was ₹23,547 crore, shows the AMFI (Association of Mutual Funds in India) data. If you are also planning to invest in mutual fund schemes via SIPs, be mindful of the fact that these systematic plans are of various kinds.

“Most of the time common man/ woman thinks that investing in formal wealth-creation products such as mutual funds requires a lot of money and thus keeps himself/ herself away from this beautiful simple compounding wealth-creation vehicle. But SIPs enable them to easily be a part of the equity asset class and be a part of a highly regulated and managed wealth creation product at the same time,” said Preeti Zende, a Sebi-registered investment advisor and founder of Apna Dhan Financial Services.

There is an array of systematic investment plans (SIPs) which mutual fund investors can make. They include flexi SIPs, step-up SIPs, combo SIPs and tenure-based SIPs.

Types of systematic investment plans 

Flexi SIPs

This is a flexible SIPs which enables investors to change the investment amount on a monthly basis. One can choose the amount on the basis of affordability. One has to choose the minimum and maximum amount of SIP. Within this range, one can invest the money on the basis of income level during each of those time periods.

Step-up SIPs

Step up SIP is an SIP that keeps increasing at fixed intervals. For instance, a step-up SIP of ₹1000 may have a step by clause of additional investment of ₹200 after every 6 months. The idea behind this is to keep increasing investment with increase in income and inflation.

Combo SIPs

A combo SIP is an SIP which invests in a combination of equity and debt mutual funds. For instance, you decide to buy two SIPs to invest in two mutual fund schemes i.e., one equity and one debt mutual fund.

Multi SIPs

A multi SIP is a combination of several SIPs in a mutual fund. This is practised by investors who want to spread out their risk level and invest across asset classes by choosing schemes in various categories. For instance, you could sign up for regular investing in three schemes: large cap, flexi cap and gold ETF.

Tenure-based SIPs

A tenure-based SIP is an SIP for a fixed tenure, say six months or one year. This is meant to invest in a mutual fund over a period of time in order to capitalise on rupee cost averaging. This effectively means being able to buy mutual fund units at different price points so that the average price is of optimum level.

Note: This story is for informational purposes only. Please speak to a SEBI-registered investment advisor before making any investment related decision.