The Buyt Desk
A Systematic Investment Plan i.e SIP allows us to invest regularly in mutual fund schemes. You keep paying a monthly instalment towards a scheme and purchase units on a monthly basis. SIP gives you the convenience to invest in small measures. Three advantages that you get from SIP are-
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Rupee Cost Averaging
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Power of Compounding
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You can start your investment with a small amount
Here are 4 ways of investing your money through SIPs-
1)Regular SIP
This is our good old way of periodic investment. Every month you fix a date and an amount that will go towards a mutual fund scheme of your choice. There is no pre-determined end date or tenure. The investor can at any time redeem the funds as per his /her requirement. This SIP is also called a perpetual SIP wherein the investor doesn’t have to mention the end date for the scheme.
2)Step-up SIP
The investor can increase his/her SIP amount depending upon his cash flow situation. Basically, you increase your SIP by adding a top-up amount. You may start a SIP in a scheme with a small amount. But over time you get a hike in your salary or you receive a bonus that you want to add to your SIP amount and increase your investment. A step-up SIP is a way to consistently increase your SIP amount. You decide that every year you will increase your SIP amount by a certain percentage so that you can accumulate a good corpus. If you are investing Rs 5000 every month and the expected return will be of 12% then it will take 20years to accumulate a corpus of 45.5 lakh. However, if you step up your SIP every year by 10% then you can achieve the target of 45.5 lakh in 16 years.
3)Flexible SIP
As the name suggests this SIP gives investors the flexibility to increase or decrease the amount of SIP as per their money situation. They must specify a default amount for their investment when they begin their SIP and 7 days before the SIP date the investor will have the option to modify the amount.
4)Smart SIP
This SIP allows you to modify your SIP amount as per the market conditions. It is guided by the ups and downs of markets. It will buy more units for you when the markets are at low or undervalued and will slow down the pace of SIP when markets are trading at highs. Smart Sips will skip your SIP payment when markets are at highs and will park your money in a liquid fund and will wait for a better opportunity to transfer the money in an equity mutual fund.
