Indian retail investors seemed to have embraced the SIP culture for investing in mutual funds. The trend is visible in the numbers. In August 2023, the SIP contributions hit an all-time high of Rs. 15,814 crores (compared to Rs. 15,245 crores in July 2023). The SIP contributions were above Rs. 15,000 for the second month in a row. Most of these SIPs are regular SIPs wherein a fixed amount is invested at a fixed frequency (weekly, monthly, etc.) for a fixed tenure. However, you can do much more with your SIP investments through different types of SIPs. Let us explore some of these SIP types.
A step-up SIP allows you to increase the SIP amount every year. For example, you invest Rs. 10,000 monthly and opt for an annual increment of Rs. 1,000. In this case, your monthly investment amount will increase from 10,000 to Rs. 11,000 in the 2nd year, Rs. 12,000 in the 3rd year, and so on.
Step-up SIP can be used to start investing in the early stages of the career with a small amount. The annual contribution can increase as your annual income increases. A step-up SIP will help you accumulate a higher amount than a regular SIP. It can also help you reach a financial goal faster than a regular SIP. A step-up SIP is also known as a top-up SIP.
A perpetual SIP doesn't have an end date and will continue till you keep making contributions. You will have to pause it by giving an instruction to the AMC. These SIPs usually have an end date of 2099. Perpetual SIPs are suitable for long-term financial goals where you are unsure of the end date. You can pause/redeem them once the financial goal is achieved.
A trigger SIP gets activated on the happening of a specified event. The event can be the index (for example, Sensex or Nifty) hitting a specified level, the NAV of the scheme hitting a specified level, etc. With a trigger SIP, investors attempt to time the market, and hence, it should be used by experienced investors. Use it when you have gathered the requisite knowledge and experience. If you are a beginner, opting for a step-up SIP is better.
A flexible SIP lets you change your SIP amount, frequency, etc. For example, some people prefer to invest less when the market is rising and invest more when the market is falling. A flexible SIP allows you to make these changes.
Any changes in the SIP need to be communicated to the AMC a specified number of days before the SIP due date. For example, an AMC may require you to inform them about any changes at least seven days before the next SIP due date.
Get more out of your mutual fund SIP
A regular SIP is a wonderful tool to invest in mutual funds in a disciplined manner for the long term. It helps you benefit from the power of compounding and generate wealth. Apart from regular SIP, the other SIP types help you get more out of your investments. A step-up SIP lets you increase your investment amount, a perpetual SIP allows you to invest in perpetuity, and a flexible SIP enables you
to adjust your investment amount. The next time you start an SIP, along with the regular SIP, explore the other SIP types and make the most of them.
Gopal Gidwani is a freelance personal finance content writer with 15+ years of experience. He can be reached at LinkedIn.