One term that has become synonymous with Mutual Funds is SIPs or Systematic Investment Plans. In this article, we will enlighten you about the different types of SIPs that are available. This information will help you select the right plan for your needs.

SIP Meaning

The easiest way of defining SIP meaning is that it is a mode of investment provided by Mutual Funds. In SIP an individual can invest a pre-determined (and fixed) sum in a mutual fund scheme at a particular interval. The frequency of such investment could be quarterly, monthly or even weekly. In principle, it can be compared to term investment such as Recurring Deposits.

Why should you go with SIPs?

Systematic Investment Plan or SIPs have gained massive popularity in recent years. As per the AMFI (Association of Mutual Funds of India), the national SIP contribution has moved up by 111% in just two financial years (43,921 crores in FY17 to 92,693 crores in FY19). On an average, 9.34 lakh SIP accounts have been added each month in this financial year.

But ever wondered what makes SIP so popular? These are the reasons:

• Disciplined investing

SIPs bring with themselves a sense of financial discipline. It deters individuals from impulse purchases or ad-hoc expenditure, as a fixed sum of money needs to be saved and invested in SIPs.

• Flexibility

One can invest as little as Rs. 500 each month in SIPs. Also, the periodicity of the SIPs can be decided by the investor as per his or her preference.

• Ease of investment

Making SIP investments is an easy and hassle-free process. Once the one-time mandate is successfully approved, the SIP amount gets automatically deducted from the bank account as per the periodicity of the scheme.

• No need for market analysis

Many times investors remain in a dilemma if it is a good time to invest or not. The constant market analysis not only consumes time and effort but also leads to delay in financial planning. SIPs take care of this as they invest across various market cycles.

• Rupee Cost Averaging

As SIPs invest across multiple market cycles, they help to average out the purchase cost and optimize the yield.

• Compounded returns

If started early and continued for a long period of time, investors get rewarded with compounded returns.

• Minimize Risk

In case of equity mutual funds, SIPs are a better way to invest (risk-wise) as compared to a lump-sum payment. As equity markets are more dynamic and volatile in nature, SIPs tend to minimize the risk quotient to a certain extent

Different types of SIPs available in Indian markets

Top-Up SIPs

Top-Up SIPs meansthe investors can make the most out of well-performing mutual fund schemes.

Imagine that you get your annual appraisal and the hike is more than you had imagined. How can you invest the additional corpus? Why bother looking at other options, if your current mutual fund is performing well?

Top-Up SIPs can be your answer in these situations. These plans allow the investors to increase their contribution amount at periodic intervals. This flexibility is highly beneficial for investors to park additional funds whenever the scheme performs well and as their income levels go up. Top-Up SIPs also take care of another important factor – decrease in money’s value due to time and inflation.

Also known as “Step-Up” SIPs, investors can increase their periodic contributions in multiples of Rs. 500 in these plans.

Flexible SIPs

Flexible SIPs means that they do not bind the investor with an obligation to pay a fixed sum of money towards the mutual fund scheme. Rather one can contribute basis their cash flow availability at the time of payment.

In case there are some unexpected money outflows in a particular period or there is a cash crunch, one can opt to skip the SIP installment. Similarly, if there is some extra income, one can increase their contribution. However, financial experts suggest that one should not use perpetual SIPs as a way to fund impulse purchases and skip investments. It should be judiciously only when there is a real cash crunch or financial emergency.

Many times, Top-Up SIPs and Flexible SIPs are wrongly used interchangeably, as both options allow the investors to vary their fund contribution. While Top-Up SIPs permit the investor to increase their contribution, with Flexible SIPs one can increase or decrease the fund contribution.

Perpetual SIPs

As the name suggests, these plans have an aspect of perpetuity. Perpetual SIPs means do not have any end date prescribed by the AMC and can be continued at the discretion of the investor.

Usually when starting a SIP, investor needs to specify the maturity date. If that is not done, then it becomes a perpetual SIP. These plans enable the investor to observe the market and maximize their gains when things are going well. Also, one can time their exit depending on the market fluctuations.

Generally, Perpetual SIPs are not recommended for beginners. This is due to the fact that having a maturity date in sight brings financial discipline. It also encourages a goal-based approach which in the long-run leads to financial satisfaction. Hence, veteran investors or those who are financially very disciplined can make the most out of Perpetual SIPs.

Trigger SIPs

Trigger SIPs means they are perfect for investors to understand the market working very well and can correctly time their buying and selling decisions. These plans allow the investor to start, redeem or switch the SIP on the happening of a particular event. The triggers could be the market or fund’s NAV reaching a certain level or benchmark.

As the basic premise of trigger SIPs is speculation, most market experts do not advise investors to go with this option.

Now that you are equipped with all the required information, just go ahead and choose the plan that is perfect for you and your financial goals. Happy investing!

The post All you need to know about different types of SIPs appeared first on Derek Time.

Before knowing how to invest in SIP, you have to understand a little more about it. An SIP helps you save periodically and provides high rates of interest on returns. Although they are on mutual funds and thus include a risk factor, SIPs are popular investment schemes for individuals who want lump sum periodic returns which often overcome the risk factor.

SIPs give you the full freedom for customization. You can fix the investment amount, mutual fund, and the plan.

These are closely similar to recurring deposits (RD). The only difference between these two is that investments in an SIP go to a mutual fund rather than a financial institution.

The minimum amount that you can invest in a SIP is Rs. 500. Financial institutions offer variable investment tenures with the minimum being 6 months. You can put your money in a SIP daily, monthly, or quarterly. You can choose to invest in any of the four SIP plans. These are Top-up SIP, Flexible SIP, Perpetual SIP and trigger SIP.

Here is a description of each of the SIP plans:

1- Top-Up SIP

If you choose to invest in these plans, then you are allowed to increase your investment amount periodically.

2- Flexible SIP

Investing in this plan allows you to decrease your investment amount as per the cash flow.

3- Perpetual SIP

Investing in this SIP allows you to redeem your fund whenever you are required as end date is not mandate in this SIP.

4- Trigger SIP

This is the ideal investment option for those who don’t have a deep knowledge in SIP as investing in this plan allows you to set NAV, index level and start as well as end date.

A Guide on SIP Investments

Follow these tips to get a brief idea on how to invest in SIP:

Choose the amount you want to invest

The amount you input will differ with the investment frequency. For example, go for a smaller amount if you plan to invest on a monthly basis. On the other hand, infuse a larger amount if you plan to invest on a quarterly basis.

Choose the duration

Selecting the duration of a SIP is critical. You have to set it depending on whether your financial goals are short-term or long-term. Experts however advice to invest on a long-term for guaranteed strong returns over time considering that stock will inflate into higher values.

Select the mutual fund

There are various mutual funds to choose from that lenders offer. The primary distinguishing factor is their duration and rate of interest. Compare the same when learning how to invest in SIP.

Fulfil the necessary requirements

You will have to fill an application form with all your essential details. Companies may also require KYC documents, address proof, and a cancelled cheque.

Provide the payment method

Depending on the investment frequency, you either have to provide a post-dated cheque or an ECS mandate.

An ECS mandate will automatically debit your account in a fixed date and forward the money to the mutual fund.

You will also have to select the date when you want your account to be auto-debited. Companies let you choose either a particular date or multiple dates.

Following these points will help you figure out how to invest in SIP. Now, take a at the best benefits to such an investment.

Reasons to Invest in a SIP

Regulated by the government

Government bodies like AMFI and SEBI control the SIP market. The rules and regulations introduced by them have made SIPs a secure investment market.

Take advantage of compounding

One of the critical benefits of SIPs is the power of compounding. The interest that you earn on your investment is compounded annually. Thus, you get to have a large pool of funds at the end of maturity.

Benefits of income tax

Equity linked savings schemes includes tax deductions on the returns after maturity. Such schemes follow up from Section 80C and help you receive maximum tax benefits of Rs. 1.5 Lakh cumulatively per financial year.

Higher rate of interest than other investment options

SIPs can offer you up to 2x times the rate of interest in comparison to standard fixed deposits and recurring deposits.

No particular market timing

SIPs are not dependant on the market performance. You don’t have to worry about the market being bearish or bullish. Thus, you don’t have to pick a particular time to invest, a vital pointer to consider if you want to learn how to invest in SIP.

Great savings options

Lastly, SIPs are one of the ideal ways to generate a substantial amount of funds for the future. It is one of the best saving options as their high ROI can help you increase your savings multifold.

SIPs generate return of investments over time as per the maturity period. They are out-and-out investment schemes and as such, they will obviously be unable to meet immediate monetary requirements if and when they come.

In such situations, short-term advances are the only way forward. Financial institutions such as Bajaj Finserv offer Personal Loans with fast approval procedures and attractive terms & features.

Now that you know how to invest an SIP, look for the available options in the market, compare them, and go ahead with an investment. Bear in mind all the pointers you have learnt here and apply them to get the most suitable terms & conditions.

The post Why you Should Invest in a Systematic Investment Plan or SIP? appeared first on Derek Time.