If you are keen on investing in equity funds and you are looking to go about in a disciplined and structured manner, there’s nothing that beats the good-old-fashioned style of investment – Systematic Investment Plan (SIP). Unlike mutual funds, SIP is not an investment product; rather it is a way to invest in mutual funds. Under an SIP plan, an investor contributes a fixed amount at regular intervals for a specific period of time to create wealth.
The past few years have witnessed fund houses and Asset Management Companies (AMC) changing the way people invest SIPs. While these newer versions of SIPs might seem attractive, you must be aware of them to make sound investment decisions.
Let’s look at some different types of SIP that you can use to meet your specific goals in life such as your child’s higher education, their marriage, retirement, buying a house, etc. Let’s begin!
Regular SIP
Almost all fund houses and AMCs offer plain vanilla SIP to investors. The investment amount and the periodicity is pre-determined by the investor before starting on with the SIP investment. The frequency of the SIP investment can be daily, weekly, monthly, quarterly, semi-annually, or annually. Under the conventional SIP plan, an investor is usually asked to fill two forms – one comprising of details to start an SIP with a fund house and the second one related to the SIP, that consists of your bank details.
Step-up SIP
A step-up SIP is different from the standard SIP in the manner that it allows an investor to begin with small monthly investments during the initial years, and then slowly increase the SIP amount as per the convenience of the investor. The investor has the liberty to change the investment amount either by a fixed amount each year or a fixed percentage.
This type of SIP is ideal for those investors who know that their income will increase over time and has the tendency to grow each year. For instance, if an investor receives a bonus or an appraisal.
Value investment plans (VIPs)
Frowned upon by several SIP loyalists, a VIP swerves away from the standard SIP wisdom that follows the principle of regular investments in a particular mutual fund scheme on a periodical basis, irrespective of the market conditions.
Under a value investment plan, your periodicity of the investments or monthly instalments isn’t fixed. You have the liberty to alter them from time to time depending on the current market conditions.
Irrespective of the type of mutual fund you invest in, make sure your mutual fund investments align with your personal and financial goals, your risk profile, and your investment horizon. Happy investing!
