Types of SIP Investment

The 7 different types of SIP are Regular, top-up, perpetual, trigger, SIP with insurance, flexible and multi-SIP. Read the full blog to pick the right plan.
Different Types of Systematic Investment Plan (SIP)
3 mins read
13-December-2024

Systematic Investment Plans (SIPs) are a popular way to invest in mutual funds. They provide a structured approach to achieving financial goals more effectively. By starting with small amounts, SIPs allow you to benefit from rupee cost averaging, making it easier to build wealth over time.
There are different types of SIPs available, each catering to specific investment needs. A flexible SIP, for example, is great for those with irregular income, such as freelancers. It allows investors to pause, resume, or adjust their contributions as needed. Additionally, a trigger SIP offers the advantage of strategic investing by setting specific conditions for investments, giving investors more control over their financial growth.

What are the different types of SIPs?

Various SIP types are available for investment, including regular SIP, flexible SIP, top-up SIP, trigger SIP, and perpetual SIP. Let's delve deeper into each variant to gain a comprehensive understanding of their features and benefits.

1. Regular SIP

In a regular SIP, investors contribute fixed amounts at regular intervals, typically monthly. This type of SIP allows investors to automate their investments and benefit from the power of compounding over time.

2. Top-up SIP

Top-up SIPs enable investors to increase their investment amounts periodically. Investors can choose to increase their SIP contributions at predefined intervals, allowing them to accelerate wealth accumulation as their financial capacity grows.

3. Flexible SIP

Flexible SIPs offer investors the flexibility to adjust their investment amounts and intervals based on changing financial circumstances. These SIP types allow investors to increase, decrease, or pause their SIP contributions as per their convenience.

4. Trigger SIP

Trigger SIPs allow investors to set predefined triggers based on market conditions or fund performance. Investors can automate their investment decisions by triggering SIPs to start, stop, or increase based on specific market parameters.

5. Perpetual SIP

Perpetual SIPs continue indefinitely until the investor chooses to stop or modify them. Unlike regular SIPs, which have predefined durations, perpetual SIPs offer investors the convenience of ongoing investments without the need for manual renewal. It is important to note that the National Automated Clearing House (NACH) has introduced a maximum duration of 30 years for setting up mutual fund SIPs from the issuance date. Additionally, it is now mandatory to specify the final collection date (end date) of the mandate. Unlike before, perpetual SIPs will no longer have an indefinite end date. These changes were in effect from October 1, 2023.

6. Multi SIP

Multi SIPs enable investors to diversify their investments across multiple mutual funds or asset classes within a single SIP. These SIP types allow investors to spread their risk and optimise returns by investing in a portfolio of funds simultaneously.

7. Step-up SIP

Step-up SIP refers to a systematic investment plan where the investment amount increases at regular intervals over time. In these types of SIP investments, investors have the flexibility to incrementally raise their SIP contributions periodically, allowing for accelerated wealth accumulation.

8. Equity SIP

Equity SIP involves investing in equity mutual funds through a systematic investment plan. These funds primarily invest in stocks, offering the potential for higher returns over the long term. Equity SIPs are suitable for investors seeking capital appreciation and willing to tolerate market volatility.

9. Debt SIP

Debt SIP entails investing in debt mutual funds through a systematic investment plan. These funds primarily invest in fixed-income securities such as bonds and government securities, offering relatively stable returns. Debt SIPs are suitable for investors seeking income generation and capital preservation with lower risk.

10. Tax-saving SIP

Tax-saving SIP, also known as ELSS (Equity Linked Savings Scheme) SIP, allows investors to invest in equity mutual funds while also availing tax benefits under Section 80C of the Income Tax Act. These SIPs have a lock-in period of three years and offer the dual benefit of tax savings and potential wealth accumulation through equity investments.

How do SIPs work?

Systematic Investment Plans (SIPs) function by enabling investors to contribute fixed amounts at regular intervals into mutual funds. This approach allows investors to steadily build their investment portfolio over time. Each SIP instalment purchases units of the chosen mutual fund at prevailing market rates, irrespective of market fluctuations. By consistently investing small amounts, investors benefit from rupee-cost averaging, where they acquire more units when prices are low and fewer units when prices are high. SIPs offer a disciplined and convenient way to invest in mutual funds, encouraging long-term wealth creation through regular contributions.

Benefits of investing in SIPs

Let us look at the benefits of investing in SIP:

  • Disciplined investing: SIPs promote disciplined investing by allowing investors to contribute fixed amounts at regular intervals, instilling a savings habit.
  • Rupee-cost averaging: SIPs mitigate the impact of market volatility through rupee-cost averaging, allowing investors to buy more units when prices are low and fewer units when prices are high.
  • Convenience: SIPs offer convenience, as investors can automate their investment process, eliminating the need for frequent monitoring and manual intervention.
  • Flexibility: SIPs provide flexibility, allowing investors to start with small amounts and increase their investment gradually as their financial situation improves.
  • Power of compounding: SIPs harness the power of compounding, where reinvested dividends or returns generate further earnings, amplifying wealth accumulation over time.
  • Diversification: SIPs enable investors to diversify their investment portfolio by spreading investments across various mutual funds or asset classes, reducing overall risk.
  • Cost-effective: SIPs are cost-effective, as mutual funds typically have lower expense ratios compared to other investment avenues, resulting in reduced overall investment costs.

Which is the best type of SIP?

Determining the best SIP type depends on individual investment objectives, risk tolerance, and financial goals. Equity SIPs are suitable for investors seeking higher returns over the long term and are willing to tolerate market volatility. Debt SIPs, on the other hand, are ideal for those prioritising capital preservation and seeking stable income streams. Tax-saving SIPs, such as ELSS SIPs, offer tax benefits under Section 80C of the Income Tax Act, making them advantageous for investors looking to save on taxes while also aiming for wealth accumulation through equity investments. Ultimately, the best type of SIP is one that aligns with the investor's financial objectives and risk profile.

Which type of sip should you select and how?

The choice of SIP depends on investors' financial goals, risk tolerance, and investment preferences. Investors should assess their investment objectives, time horizon, and liquidity requirements before selecting the appropriate type of SIP. Those seeking a disciplined approach may opt for regular SIPs, while investors looking for flexibility may prefer flexible SIPs or top-up SIPs.

Here is a comparison between two types of SIPs – regular SIP and top-up SIP.

Let’s say an investor wants to accumulate a corpus of Rs. 15 lakh in 10 years. They have the option to invest in a regular SIP or a top-up SIP. Let us compare the returns and investment amount required for each option:

Regular SIP

  • Investment: Rs. 5,000 per month
  • Tenure: 10 years (120 months)
  • Total Investment: Rs. 6,00,000 (5,000 per month x 120 months)
  • Expected Return: 12% per annum (This is an assumption, and actual returns could vary)
  • Expected Maturity Corpus: Rs. 11,61,695 (This is an estimation based on the assumed return rate)

Top-up SIP

  • Investment: Starting at Rs. 5,000 per month, with an annual increase of 10%
  • Tenure: 10 years (120 months)
  • Total Investment: Rs. 9,56,245 (This will be higher than a regular SIP due to the annual increase)
  • Expected Return: 12% per annum (This is an assumption, and actual returns could vary)
  • Expected Maturity Corpus: Rs. 16,87,163 (This will be higher than a regular SIP due to the increased investment amount)

As you can see, the top-up SIP offers a potentially higher maturity corpus due to the increased investment over time. However, it also requires a larger total investment. The right choice for an investor depends on their individual financial goals and risk tolerance.

Compare Regular SIP Vs Step Up SIP

If an investor invests Rs. 3,000 monthly in a regular SIP for a duration of 10 years at 12% per annum, that investor's total return will be approximately Rs.  3,37,017. However with Step up SIP, at the same amount, rate of interest and number of years, his return will be 4,38,551. You can find a detailed view in the table below:

Particulars

Regular SIP

Step up SIP

Monthly SIP amount

3000

3000

Duration

10 years

10 years

Annual returns

12%

12%

Total Investment

3,60,000

5,73,747

Returns

3,37,017

4,38,551

 

Recommended Mutual Funds for SIP in 2024

How to invest in SIP?

Choose the Right Mutual Fund Scheme: Research and select a mutual fund that aligns with your financial goals, risk tolerance, and investment horizon. Consider the fund's past performance and fund manager's expertise.

Decide on the Investment Amount: Determine the amount you wish to invest regularly. Start with a manageable amount and increase it as your financial capacity grows.

Select the SIP Date and Frequency: Choose a date each month when your SIP amount will be automatically deducted from your bank account. Most investors opt for monthly SIPs, but you can also select weekly or quarterly frequencies.

Complete the KYC Process: Ensure you are KYC (Know Your Customer) compliant. This involves submitting proof of identity, address, and a recent photograph.

Set Up the SIP Online or Offline: You can start a SIP either online through the mutual fund's website or a financial platform, or offline by visiting the fund house or your bank.

Monitor and Review Your Investment: Regularly review your SIP investments to ensure they are aligned with your financial goals. Adjust your SIP amount or switch funds if necessary.

Conclusion

Understanding the different types of SIPs empowers investors to make informed decisions and build wealth systematically over time. By selecting the right SIP types based on their financial goals and risk appetite, investors can embark on a journey of wealth creation with confidence and peace of mind.

Essential tools for mutual fund investors

Mutual Fund Calculator

Lumpsum Calculator

SIP Calculator

Step Up SIP Calculator

SBI SIP Calculator

HDFC SIP Calculator

Nippon India SIP Calculator

ABSL SIP Calculator

Tata SIP Calculator

BOI SIP Calculator

Motilal Oswal Mutual Fund SIP Calculator

Kotak Bank SIP Calculator

Frequently asked questions

What is SIP?

SIP stands for Systematic Investment Plan, a disciplined approach to investing in mutual funds by contributing fixed amounts at regular intervals.

How do SIPs work?

SIPs allow investors to automate their investments by contributing fixed amounts at regular intervals, enabling them to benefit from the power of compounding over time.

Why choose SIP in mutual funds?

IPs offer a disciplined and systematic approach to investing, allow for rupee-cost averaging, and help investors benefit from the power of compounding.

What type of SIP should you select and how?

The choice of SIP depends on investors' financial goals, risk tolerance, and investment preferences. Investors should assess their objectives and select the SIP type accordingly.

Can I increase my SIP amount later?

Yes, investors can increase their SIP amounts later through top-up SIPs or flexible SIPs, allowing them to scale up their investments as their financial capacity grows.

What’s the ideal SIP duration?

The ideal SIP duration depends on investors' financial goals and time horizon. Generally, longer SIP durations allow for greater wealth accumulation through the power of compounding.

Are SIP returns guaranteed?

SIP returns are subject to market fluctuations and fund performance. While SIPs can help mitigate market risks through rupee-cost averaging, returns are not guaranteed and may vary based on market conditions.

Which type of SIP is best?

The best SIP types depends on individual investment goals and risk tolerance. Equity SIPs are suitable for higher returns, while debt SIPs prioritise stability.

What are examples of SIP?

Examples of SIP include Equity SIPs, Debt SIPs, Tax-saving SIPs (ELSS), and Hybrid SIPs, each catering to different investment objectives.

What is the difference between SIP and Flexi SIP?

SIP involves fixed periodic investments, while Flexi SIP allows investors to vary their investment amounts based on market conditions, offering more flexibility.

Which SIP gives 40% return?

No SIP guarantees a specific return rate, as returns depend on market performance. Equity SIPs have the potential for higher returns but also entail higher risk.

Which SIP type gives highest return?

Equity SIPs have the potential to offer the highest returns over the long term due to exposure to equity markets, but they also carry higher risk compared to debt or hybrid SIPs.

Which SIP is better, direct or regular?

If you invest Rs 15,000 per month in a direct mutual fund scheme SIP and a regular mutual fund scheme SIP for 10 years. Due to the lower expense ratios in the direct scheme, your investments are likely to yield higher returns over time compared with the regular scheme.

Which SIP is more profitable?

The growth and return of a mutual is completely dependent on the market conditions. It is up to every investor to ensure that they have researched well and understood which fund better suits their needs.

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Disclaimer

Bajaj Finance Limited (“BFL”) is an NBFC offering loans, deposits and third-party wealth management products.

The information contained in this article is for general informational purposes only and does not constitute any financial advice. The content herein has been prepared by BFL on the basis of publicly available information, internal sources and other third-party sources believed to be reliable. However, BFL cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. 

This information should not be relied upon as the sole basis for any investment decisions. Hence, User is advised to independently exercise diligence by verifying complete information, including by consulting independent financial experts, if any, and the investor shall be the sole owner of the decision taken, if any, about suitability of the same.