Systematic Investment Plan (SIP) All you should know

What is a Systematic Investment Plan (SIP)?


A Systematic Investment Plan or SIP is an investment tool used by mutual funds to investors, enabling the investors to invest small amounts of money periodically instead of investing in a lump sum. The period of SIP may vary, it can be weekly or monthly or quarterly based on investors’ interest. In SIP, regular fixed amounts are invested in the investor’s choice of Mutual Fund Scheme and every month the fixed amount will be deducted from the investor’s savings account and invested in that particular Mutual Fund Scheme.

How Does SIP (Systematic Investment Plan) work?

Basically, Systematic Investment Plans are periodic and consistent investments similar to recurring bank deposits. In this, the investors have to invest a fixed sum regularly in any mutual fund scheme matching their requirements like their income level, savings capacity, risk-taking capacity, level of savings one is interested to do, etc. Each month the investor has to pay in the promised amount to the mutual fund scheme. The investor has the option to choose an auto debit amount from their bank account option or vice-versa based on the investor’s preference. Based on the amount invested, corresponding amounts of mutual fund units are allocated to the investor. Later on, that amount will be invested in respective companies’ shares without the proper disclosure of the exact location of the investment made. And the returns earned in those companies’ shares will be given back to the investors of SIP as returns earned by them too. Returns earned on SIP are much more than investing in savings deposits and way too safer than investing in stock markets/ secondary markets. The absence of too many any kind of intermediaries like brokers, agents, or any other makes the investors earn a little higher returns as the commission amount is saved to a big extent.


Types of SIP – (Systematic Investment Plan)

There are 5 major types of Systematic Investment Plans (SIP), which include:

  1. Regular SIP: investing directly in SIP without involving any kind of intermediaries like distributors or agents or anyone else.
  2. Flexible SIP: investors can vary their amounts of investments every month based on the availability of amounts with the investor in that particular month.
  3. Top-up SIP: In this, the investor has the option to increase the SIP installment amount by a fixed amount at predefined intervals.
  4. Trigger SIP: On the occurrence of any particular event as specified by the investor, the funds of one scheme will be automatically switched to another scheme.
  5. Perpetual SIP: this type of SIP does not have any end dates. So one needn’t have to renew their SIPs now and then.

SIP Plans to Invest in 2023

The decision of investing in SIP is one of the major effective decisions taken by any first-time investor/ regular investor. Investing in SIP is less risky than investing in stock markets, hence SIP is recommended to those people who are looking to grow their money but are not much interested in taking the risk or putting their money at risk. One can look into many prosperous SIP investment companies and choose according to their convenience.

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