Systematic Investment Plan popularly known as SIP, is a disciplined and flexible investment approach that allows individuals to invest a fixed amount regularly in a mutual fund to build wealth through compounding. SIPs allow you to invest in the stock market without any need to time the market. In this article, we will look at the variants of SIPs and their characteristics.
What is Step Up SIP?
A Step Up SIP is a variant of SIP wherein an investor can increase the investment amount at periodic intervals, usually annually. This variant of SIP is meant for investors who wish to increase their investment amount with time with their increased income or change in financial goals. In the case of a Step Up SIP, the investment amount is incremented at periodic intervals by a fixed percentage or fixed amount, which may be monthly, quarterly, or annually.
For example, assume, you start a Step Up SIP wherein your initial investment is Rs. 5,000 per month. Simultaneously, you set that SIP to hike the invested amount by 10% every year. So, in the second year, the amount of your investment will be increased to Rs. 5,500 per month and in the third year, Rs. 6,050 per month, and so on.
Step Up SIP: Benefits
- Higher investment amount: With a Step Up SIP, you are increasing the amount of investment over time and therefore approaching your goals for long-term investment more rapidly.
- Planned investment: A Step Up SIP will enable you to invest a fixed sum of money at periodical intervals. That will help you maintain a regular investment habit.
- Flexibility: The step-up frequency depends on your financial goals and can be monthly, quarterly, or annual.
- Long-term wealth creation: With a Step Up SIP, you can generate long-term wealth as increasing the investment amount can potentially increase returns.
Different Types of Systematic Investment Plans (SIPs)
Here are the diverse range of Systematic Investment Plans (SIPs) offered by mutual fund distributors like banks such as ICICI Bank. You can choose an investment strategy customised to your financial goals and preferences.
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Regular SIP
A Regular SIP is a form of SIP that can be availed by the investor, wherein he invests money in fixed quantities at periodic intervals.
Features:
- You will invest a fixed sum of money periodically, say every month or quarterly.
- No flexibility in changing the amount of investment or periodicity of investment.
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Flexible SIP
A Flexible SIP is a form of SIP wherein one can vary the investment amount, and frequency, or even pause their investments according to their needs.
Features:
- It allows the investor to vary the amount of investment, the frequency thereof, or even stop investments according to needs.
- Flexibility in adjusting the investment plan to suit changes in financial goals or risk appetite.
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Perpetual SIP
Perpetual SIP is a variant of SIP wherein your investment can go on uninterrupted until you decide to stop.
Features:
- Investment continues uninterruptedly until stopped.
- No anxiety about stopping or restarting investments.
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Trigger SIP
Trigger SIPs are a variant of SIP wherein you can set a trigger point as per which the investment amount can be increased or decreased.
Features:
- Allows setting a trigger point at which the investment amount is to be increased or decreased.
- The trigger point may be based on market indices, the NAV or any other market indicators.
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Top-up SIP
Top-up SIP is a variant of SIP wherein, in addition to your regular SIP investment, you are allowed to invest an additional amount of money at periodic intervals.
Features:
- Allows you to invest an additional amount of money at regular intervals.
- Can be used to increase the amount of investment over time.
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One-time SIP
One-time SIPs are a type of SIP wherein an investor can invest a lump sum amount at one instance in time.
- One-time SIPs essentially allow you to invest a considerable amount of money at a single instance in time.
- One-time SIPs can be employed when you need to make a large investment at one go rather than staggering the same over time.
How to Choose the Right Type of SIP
Choosing the right type of SIP would depend upon your financial goals, investment horizon, and the quantum of risk that you can take on. Following would be a few things you would want to consider:
- Financial Goals: Consider your financial goals which could be anything from a down payment for a house to retirement or a child’s education.
- Investment Horizon: Consider the period for which you want to invest or your investment horizon.
- Risk Tolerance: Find out your risk tolerance, that is, the extent of market volatility you can bear.
- Income: Find out how much you earn and what your expenses are to determine how much you can invest on regularly.
- Flexibility: Ascertain whether you need some flexibility in the SIP such as regarding investment amount or periodicity.
Conclusion
Investing in the stock market just got way easier! You can choose from a range of SIPs offered by MF distributors like ICICI Bank, each trying to perfectly fit into your financial goals, risk appetite, and income. SIPs can be managed through digitals channels of the reputed banks like ICICI Bank for seamless management of your investment. For both seasoned and new investors, SIPs offer an excellent, balanced way to increase one’s wealth over time. Understanding the types of SIPs and starting to invest today is the first step to securing your financial future.