If you’re keen on investing into equity mutual funds and are looking for a disciplined way to go about it, there’s nothing that beats the good old SIPs (Systematic Investment Plans). However, SIPs as we’ve known them conventionally, have been given a twist in the recent times to suit the investors’ objectives.
The past few years have witnessed AMCs and fund houses changing the way people invest via Systematic Investment Plans (SIPs). While these newer SIP versions seem attractive, you should be aware of them in order to make sound investment decisions.
Let’s take you over some different SIP types you can use to meet your specific life stage goals like children’s education, marriage etc. Let’s begin!
The simple systematic investment plan
This is how we’ve always known SIPs as! Almost all the major fund houses offer plain vanilla SIP option. You’re free to choose the frequency of investment – daily, weekly, monthly or quarterly, apart from the investment amount. Normally, you’ll be asked to fill up two forms, one consisting of details to start an account with the mutual fund and another one related to the SIP, consisting of your banking details.
Although you get the option to give post-dated cheques, ECS is the preferred option. The amount you may want to invest via SIP will depend on your monthly income and the exact life-stage goal you’re trying to achieve. The t good way is to fix a particular life-stage goal like daughter’s marriage, son’s higher education etc. (which may be 10 to 15 years away) and then working backwards to determine your monthly SIP investment. You’ll also have to take into account the rate at which you expect your investments to grow.
Step up systematic investment plan
A step up systematic investment plan is different from the conventional SIP in the manner that it enables you to start off with small monthly investments during the initial years, and then slowly increase your investment amounts as and when you feel comfortable, depending on your income.
For instance if you’re 30 years old right now and plan to start investing for your retirement, you can start now by saving around Rs. 3000 per month for the first year, and then slowly increase your monthly investments by Rs. 1000 starting from the second year. Later on, when you progress in your career and get good income hikes, you can increase your monthly commitments accordingly by Rs. 3000-Rs. 5000. Doing so, you’ll be able to build a healthy corpus of around Rs. 3.5 crores by the time you’re 60. (The aforesaid figures and calculations are only for the reference and understanding of investors and are for illustrative purposes only. Actual results may vary.)
Fund houses have given different names to such SIPs, but at core they help you achieve the same objective.
VIPs or value investment plans
Frowned upon by many SIP loyalists, a VIP veers away from the traditional SIP wisdom, which is about continuing investing a particular amount on a periodical basis, irrespective of the market conditions.
In a value investment plan, your periodical or monthly instalments aren’t fixed. You can alter them from time to time depending on the current market conditions. Different fund houses running their own versions of VIPs have their own unique ways of tweaking the plans to suit the investors’ needs.
If you’re a salaried person who is focused on making regular investments to meet his/her different life-stage goals, SIP is the way to go. Opt for value investment plans only if you’re completely aware of what they entail and their repercussions.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.