Invest Smartly with Trigger SIP: Invest Based on Market Movements

Traditional Systematic Investment Plans (SIPs) are preferred because of their disciplined investment approach and rupee cost averaging benefits. However, in a traditional SIP, you invest a fixed amount regularly. This prevents you from taking advantage of specific price changes or market events. A trigger SIP can help you bridge this gap. As the name indicates, it is activated when a specific trigger occurs.
 

In this article, we delve into the meaning of a trigger SIP, discuss how it works and check out its advantages. This will help you make an informed decision about whether or not trigger SIPs are the right choice for your investment strategy.

A trigger SIP is a variation of the regular Systematic Investment Plan (SIP). It allows you to time your investments based on specific triggers like a required price level, an expected market event or a specific development in the market. When the trigger occurs, your SIP investment may be activated or deactivated, as mentioned in the terms of your trigger SIP.
 

The meaning of a trigger SIP makes it clear that this strategy works best if you already anticipate a particular price level or event to occur. This means that to make smart decisions about when to start or stop a trigger SIP, you need to be aware of market trends, market-related news and other potential price drivers.

Say you set up a monthly SIP of Rs. 5,000 in an equity mutual fund with the following trigger condition: the SIP will only start if the fund’s NAV drops to Rs. 250 or below. Once triggered, the SIP investments will continue till the NAV reaches Rs. 350 or higher, at which point the SIP will pause.
 

This is an example of a price-based trigger SIP that helps you invest when the price is low and pause when it is higher. By using your trigger points smartly, you can optimise your market entry and exit as needed. 

Trigger SIPs work like prompts that can start, pause or stop your investments as required. The trigger can be based on a market event, a price limit or a specific period. Let us look into how the different types of triggers work, so you can understand the meaning of trigger SIPs better.

• Price-oriented triggers: This type of trigger uses a predetermined price point to activate or deactivate a Systematic Investment Plan. For instance, you may want to start investing in a mutual fund scheme if the NAV hits a specific level (say Rs. 50) and pause your SIP if the NAV rises to Rs. 70.
• Event-oriented triggers: This is a type of trigger SIP that relies on a specific market event to be activated or deactivated. The event could include any relevant development, like the interest rates being cut, GDP rising, quarterly results being released or any similar trigger. To use this type of prompt, you need to be in tune with new developments in the market.
• Time-based triggers: This is a kind of trigger SIP that uses time-based prompts to start, pause or stop the investments. The time-oriented trigger may be set in different ways. You may want to start investing on the first day of each quarter or during specific festive seasons to use increased market volatility to your advantage. 

Trigger SIPs can affect your investment strategy in many ways. To make the most of this investment technique, you need to understand how it could impact your overall investment strategy. Let us discuss these details further.

• Alignment with market movements: Trigger SIPs allow you to invest more when the market falls and pause your investments in high phases. This can help you buy more units at lower prices, thereby reducing the overall cost of investment greatly.
• Reduction of emotional bias: With a trigger SIP, you can ensure that your investment strategy is not affected by your impulses and emotional bias. This is because the triggers are based on specific data rather than impulsive decisions.
• Goal-based customisation: You can customise your trigger SIPs to align them with specific financial goals. This includes different milestones like making a down payment on your dream home or saving for retirement.
• Potential for better returns: By planning your investments strategically, you can potentially maximise your returns with a trigger SIP. However, you need to tailor your investment strategy effectively to make the most of market cycles. 

The performance of trigger SIPs depends greatly on the general market condition and the specific conditions of the trigger itself. Since these SIPs automatically adjust the investment based on the conditions you set, you need to understand how different scenarios can affect the SIP. Let us look into some common market scenarios and discuss the performance of trigger SIPs during each phase.

• Bullish market: In a market with rising prices, a trigger SIP may underperform compared to a regular SIP. This is because your trigger could delay the investment till a market dip occurs. So, you could miss out on potentially good capital appreciation in the meantime.
• Bearish market: When the market is declining, trigger SIPs can perform quite well. If you increase your investments when the market dips, you can accumulate more units at lower prices. When the market eventually recovers, these additional units could improve returns.
• Volatile market: Trigger SIPs can thrive in a volatile market if you set the right conditions. Ideally, your strategy should aim to capitalise on short-term price declines, so you can buy low and sell high. 

An important aspect of understanding the meaning of trigger SIPs and how they work is getting to know their benefits. Here are the top ways in which a trigger SIP can be useful for your investments.

• Tactical investing: By adjusting your SIPs to react to certain triggers, you can invest in the markets more tactically and strategically. This gives you a more hands-on approach to investing than regular SIPs do, as they simply focus on investing no matter what the market conditions may be.
• Risk management: With trigger SIPs, risk management also becomes easier and more effective. You can set risk-related triggers to start or stop your investments as needed. This means you can invest during low-risk phases and pause when the market volatility rises.
• Automation and discipline: The very nature of Systematic Investment Plans (SIPs) is to support automated and disciplined investments. Trigger SIPs also offer this benefit. You can rely on your SIPs to initiate or pause your investments automatically as per the conditions you set. 

Also read: Different types of investments

If you are planning on investing in mutual funds via trigger SIPs, you need to ensure that you factor in all the important aspects needed to make smart decisions. These factors include the following considerations:

• Market trends: Understanding market trends is crucial if you want to use trigger SIPs successfully. This will help you figure out when to set start and stop triggers to maximise your returns.
• Technical indicators: Technical indicators can also give you vital insights into when to start a SIP or stop one. You need to understand technical analysis and get better at reading price charts and technical indicators like moving averages, RSI, MACD etc.
• Asset allocation: You should also consider your existing asset allocation and your target asset allocation before starting a trigger SIP. This will help you avoid focusing too much on one asset class or sector.
• Investment costs: Trigger SIPs, like all mutual fund investments, also carry investment costs. You need to assess these expenses and ensure that they do not exceed a reasonable limit. This will help you maximise your net gains. 

Now that you know the meaning of trigger SIPs, how they work and what their benefits are, you may be wondering if they are suitable for your goals. Ideally, you can consider opting for trigger SIPs if you have any of the following requirements:

• Specific investment goals: If you have a clear financial goal that you want to achieve within a specific timeframe, you can consider trigger SIPs.
• Preference for market timing: This style of investing can also help you if you want to make investments based on specific market conditions instead of a fixed schedule.
• Flexible requirements: If you prefer a more flexible approach that allows you to adjust your investment strategy as needed, trigger SIPs can help.
• Greater control: With these SIPs, you get more control over when your investments start and stop. So, if you want a more active role in your portfolio, this method is ideal.

This concludes our guide to trigger SIPs in the financial markets. You can now compare mutual funds, choose a suitable scheme and start a trigger SIP in any fund that may align with your view of the markets.
 

If you are not sure which fund to invest in, the Bajaj Finance Mutual Fund platform, with over 1,000 schemes available, may be the right place to begin. Check out the different types of funds available on this platform and evaluate their risk-return profiles to find a suitable choice. If you decide to start a regular SIP instead of a trigger SIP, you can even use the mutual fund calculator on this platform to streamline your decisions.