There’s no denying the fact that mutual fund systematic investment plans (SIPs) have become among the most sought-after goal-based investing options. What’s more, there are as many as six variants of SIP. Be it a salaried person, business person or freelancer with lumpy income, there are SIPs out there that might be more suitable for you, than others. Here is a detailed look.

Tenure-based SIP

An SIP of a pre-defined amount, say ₹10,000, invested at regular intervals (weekly, monthly, quarterly etc.) for a fixed tenure in a particular mutual fund scheme is the most basic SIP variant. This regular SIP helps in achieving financials goals through rupee-cost averaging. However, if you want to stay invested in that particular scheme for a longer time frame, you will have to renew the same from time to time. For those who don’t want the hassle of SIP tenure renewal, the perpetual SIP can be of help. While filing the SIP form, one might include a specific period during which the SIP should continue. However, if you don’t define a tenure, it becomes a perpetual SIP. Here, the same ₹10,000 will be invested periodically till instructions to stop the same are given.

Typically, one who has just started earning, can go in for a perpetual SIP if he/she doesn’t have an immediate specific goal, and can stop the same whenever required. A perpetual SIP provides relief from renewal hassles. However, you need to keep a tab on the fund’s return over time, and check if a change is warranted.

Also read: How to plan and invest in an SIP?

Multi SIP/Combo SIP

The multi or combo SIP allows you to invest in multiple mutual fund schemes of a fund house through a single SIP transaction. Fund houses such as Edelweiss, HSBC, JM Financial and HDFC offer such an option. Edelweiss Mutual Fund, through its Edelweiss Combo SIP, provides investors three options based on investors’ risk appetite – Conservative (Edelweiss Equity Savings Fund and Edelweiss Balanced Advantage Fund), Moderate (Edelweiss Large & Mid Cap Fund and Edelweiss Balanced Advantage Fund) and Aggressive (Edelweiss Multi Cap Fund and Edelweiss Mid Cap Fund).

A Combo SIP would involve selecting and registering for SIPs again and again as you are given a pre-defined set of schemes. Investing in such products would mean that your portfolio might be exposed to fund house concentration risk and also the possibility that a particular fund house may not have top performing schemes or those that align with your evolving goals at a later stage.

Listen: Portfolio Podcast | Systematic Investment Plan: How should you go about it?

Flexi, Step-up and Trigger SIPs

If you are a salaried individual getting a regular increment, you can consider investing in a Step-up SIP or Top-up SIP. Using this facility automatically increases your SIP amount by a fixed amount, say ₹1,000 or by 10 per cent every year, without having to give any fresh instructions. Thus, your salary hikes get invested regularly, while it may also help you achieve your financial goals faster. However, do note that this might not be suitable for those with irregular or stagnant income streams.

Flex SIP is another variant that attempts to time the market by following the concept of ‘buy low sell high’. Here, the periodic investment instalment depends on the market movement and the amount is dependent on a pre-defined formula. So, it is lower when markets are high, and higher when markets are low. The instalment amount might depend upon factors such as market value of investment already made, valuation multiples like P/E and certain volatility measures such as VIX. Various fund houses provide Flexi SIP products such as Kotak Smart SIP, HDFC Flex SIP and Axis Flex SIP.       

Also read: Market timing, an active decision

Further, various fund houses offer you Trigger SIP, where a part or full amount is automatically redeemed from one scheme, and that investment is switched to another scheme when a particular pre-defined point is triggered. For instance, Mirae Asset’s Trigger Investment Plan (TRIP) provides investors the option to allocate their portfolio from one fund to another, based on index levels. Triggers can be upside or downside. Let’s say, if the Sensex falls by 500 points is a trigger, the trigger SIP action will be initiated. Likewise, there can be other triggers such as NAV trigger, capital trigger and time-based trigger. Any sort of trigger lends itself to some sort of market timing and associated intricacies, which are best avoided by first-time retail investors.

How to choose
An investor should pick the type of SIP as per her/his own income stream