THE SIX SIP VARIANTS
The purpose of SIPs is to make you invest regularly. There are many variants of the plan that enhance this disciplined way to invest in mutual funds
1 REGULAR SIPs You invest a fixed sum over a fixed time-frame through a fixed frequency. For instance, you may invest Rs 5,000 a month for the next five years, making a total of 60 SIP instalments through a standing instruction. This is the most simple and hassle-free form of SIP. You could invest through daily, weekly, monthly or any other SIP frequency that is offered at the time of commencing the investment.
2 STEP-UP SIPs This form of SIP is also known as top-up SIP, which allows investors to increase their SIP contributions by a fixed sum. For instance, the Rs 5,000 monthly SIP could be toppedup each passing year by an additional Rs 1,000. Through this option, you can automate the increase in your SIP each passing year, instead of starting a fresh SIP each year. Moreover, for many investors, this is a way to increase the sum they invest each year in line with their rising income.
3 FLEXIBLE SIPs In this variant of SIPs, you have the flexibility to change the investment amount based on a pre-decided formula. For instance, you could commit to increasing your SIP contribution each time the market falls. In this way, you benefit from acquiring more units in the fund you invest whenever the markets fall and decrease the SIP amount when markets get expensive. You could also take an SIP pause if you are facing a financial crunch; how long you take the pause for varies on the fund house and the flexibility option you have chosen.
4 PERPETUAL SIPs Typically, when you opt for investing through SIPs, you need to declare a tenure for which you wish to stay invested, like 3 or 5 years or more. There is a perpetual option through which you do not have any specific end date or tenure. Through this SIP variant, you can continue to invest as long as you do not opt to stop the SIP yourself through a stop SIP request.
5 TRIGGER SIPs A variant of the flexible SIP, in this, a trigger is set for the SIP to initiate purchase, sell or stop the investment to some market event like a sudden market dip or a favourable market condition, a specific index level or pre-decided NAV (Net Asset Value) and so on. This SIP variant is suitable for evolved investors who wish to take dynamic investment decisions.
6 MULTI-SIPs This type of SIP allows you to invest in multiple fund schemes of a fund house through a single SIP. For instance, if you wish to invest Rs 10,000 each month split into three different schemes for Rs 3,000, Rs 2,000 and Rs 5,000, you can do so; instead of three different SIPs, you can opt for a single SIP. This reduces the paperwork or managing multiple SIPs—you can invest in one SIP that automatically invests your money into multi-schemes. This adds to the diversification of your investment portfolio.