If you thought that a Systematic Investment Plan (SIPs) is just one boring type of plan, think again. You may be surprised and glad to know that there are four types of SIPs. If you do not know these types, here is a brief introduction to these SIPs:
These SIPs allow you to increase you SIP amount at regular intervals. Such a facility enables you to take advantage of a mutual fund scheme that is performing well by increasing the amount of your contribution at regular intervals. Also, it facilitates the investor to invest a higher amount with a rise in his/her income.
This type of SIP provides the facility to increase or decrease the SIP amount as per the cash flow of the investor. So, when an investor faces cash crunch due to some reasons, he can skip payment of few SIP instalments till the financial situation returns to normal. On the other hand, if an investor receives bonus or makes some windfall gain, he can deposit the full or part of the amount into the SIP account.
Normally an investor signs up the SIP mandate for a fixed period of, say, 1 year, 3 years, 5 years and so on, but if the investor does not enter the end date in the SIP mandate, it is deemed to be a perpetual SIP. This leaves the option open for the investor to redeem the fund at the time of his choosing or when his financial goals are achieved. However, it is always better to start SIP for a fixed period as it inculcates financial discipline and fosters goal-based approach.
This type of SIP is suitable for those with some knowledge and awareness of financial markets. An investor can set either an index level, NAV, event or a particular date to start this SIP. But this type of SIP is not desirable as it encourages speculation.