SIP acronyms for Systematic Investment Plan (SIP) which is a typically an investment strategy offered by Mutual Funds wherein an individual can invest a fixed amount in a Mutual Fund Scheme at a particular fixed date whether weekly, monthly, or quarterly.
There are various types of Systematic Investment Plans (SIPs) available in India to invest in Mutual Fund Schemes. Here are 5 selected kinds of SIPs, which one should know:
i) Regular SIP:
- In this type of SIP plan, investors invest a fixed amount of money in a mutual fund scheme in a weekly, monthly, or quarterly manner.
These kinds of SIPs are the most simplest and observed ones
ii) Top-Up SIP:
- Top-Up SIP is also called Step-Up SIP, as this allows the investors to increase the SIP amount periodically.
- In this case, an individual can increase the amount of SIP of his/her mutual fund by a certain percentage/amount periodically.
- For instance, a person can opt to increase the ongoing SIP of Rs. 5,000 per month to be increased by 10% every month. Then SIP of the concerned person will be Rs. 5,500 (10% of Rs. 5,000) from next month and it will increase every month accordingly.
iii) Perpetual SIP:
- These are those SIPs wherein the installments of the mutual funds go on until the Investor directs to stop the SIPs.
- There is no end date to the SIP in this kind of SIPs.
iv) Flexible SIP:
- In this kind of SIPs of a mutual fund scheme, an investor is given the freedom to change the SIP amount as per his/her cash outflow and inflow.
- At the starting of this SIP, a fixed amount is needed to be mentioned, which could be changed before 7 days of the SIP date.
v) Trigger SIP:
- This type of SIPs is suitable for only those investors who are well aware and possess great knowledge about the market and its volatility.
- Here, Investors in advance can set their start, sell, or switch date of the SIP, in the occurrence of an event.
- This SIP should be opted by those investors only who have a good amount of knowledge about the market and understands the market situations very well.
3 SIP hacks are:
1. When to start SIP:
- There is no such good period to start a SIP, an individual can always start investing in SIP any day.
- A SIP is all about making behavior of investing to support the future cash flows of an individual.
- A person should always keep investing in SIP even if the market falls.
2. Amount to be invested in SIP:
- From the total savings around 80% to 90% should be invested in SIPs that way it will make difference.
- If a person accumulates their savings in the bank account, he can do some impulsive buying or can go with low return investments.
- The rule of 50-30-20 should be incorporated in the revenue allocation to get the desired returns.
- In which 50% of the total revenue should go for household expenses including EMI or Rent, 30% should go for investment for long-term financial goals and 20% should go for short-term financial goals.
3. On which date to start a SIP:
- Many people have given the facts that on which date of the month is good to start a Systematic Investment Plan (SIP)?
- But there’s no such method or such perfect day to go ahead with a SIP as it’ll not going to make any major change in the returns.
The Systematic Investment Plan (SIP) is a simple process and should not be complicated by introducing various combinations with will not going to make a major change and just make things more complicated. Do consult a financial advisor before commencing off the investment journey or Do proper research and study before investing.