Want to make the most of SIP investment? 5 types of Systematic Investment Plans which will boost your returns
Mutual funds are one of the most prominent investment options in the financial market. They not only offer higher returns but also help investors create wealth in the long term. Systematic Investment Plans (SIPs) can be an effective way of investing in mutual funds as you can invest small amounts at regular intervals.
In this article, we look at five SIP types that can boost your returns.
- Top-up SIP
When investing in SIPs, it is a good practice to align your salary hikes with an increase in the SIP amount. This can help you attain your financial goals quickly. Top-up SIPs allow you to specify a percentage increase in your SIP amount or a fixed amount every year in multiples of Rs.500. It can help beat inflation and instead of investing in a new plan, you can stay invested in the existing one.
- Flexible SIP
A Flexi SIP allows you to change your SIP amounts every month based on your monthly cash flow. For example, if in a month your budget has exceeded, you can choose to lower the SIP amount. However, you need to mention a default SIP amount. Seven days before the SIP amount is due, you can change the amount if required. Else, the SIP of the default amount gets debited from your account.
While SIPs are the norm for most investors, SmartSIP, which is a fairly recent order, has emerged as an alternative and more sophisticated investment tool to SIPs. SmartSIP can offer added advantages over a regular SIP. Here’s how:
When markets are reasonably valued, SmartSIPsinvest your money into equities. When markets are high, it avoids making fresh investments in equity funds. When markets rise further, it sells a portion of your existing equities and transfers it in liquid schemes so you can continue to earn decent returns.
For an investment horizon exceeding five years, a SmartSIP order can be ideal.
- Perpetual SIP
Typically, when you set up a SIP, there is an option to leave the end-date column blank. The SIPs that do not have a pre-defined tenure are known as perpetual SIPs. Young investors at the beginning of their career can take to help them stay financially disciplined for a long time.
With perpetual SIPS, there is no SIP termination date and hence, no need to renew the SIP. You can stay invested in the fund as long as you wish.
- Trigger SIP
This SIP allows you to set a target based on a pre-specified date or price as per your risk tolerance and investment goals.
For example, Mr. A buys 1000 units at a NAV of Rs.10 for Rs.10,000. He sets up a trigger SIP wherein he wishes his profit to be transferred to an income fund once his mutual fund investment generates 20% returns. So, whenever the NAV of units grows by 20%, i.e. reaches 12, Rs.2,000 (1,000 x 2) is transferred automatically to an income scheme.
As a new investor, you can start your mutual fund investment journey by reading on what is a mutual fund and how to invest in SIP. Once you understand the different types of SIPs available to invest in mutual funds, choose the one that best suits your investment goals.