Personal Finance

SIPs: Many options to choose from

Nalinakanthi V | Updated on July 22, 2018 Published on July 22, 2018

It’s more than just investing a pre-decided sum of money at regular time periods

While most of us know that equities are the best asset class to bet on when you have a longer investment horizon and the appetite for risk, a sharp fall in the bellwether indices often pushes one to press the panic button. And even those who want to think long-term are unable to do so, and make impulsive decisions to sell.

This is why investing systematically in mutual funds can help calm the jitters. It helps one make investing a habit without worrying about the volatility, and timing the market.

Systematic investment plans (SIP) make more sense in a falling or direction-less market, since they not only help one stay put with the habit of investing, but also reduce the cost and the resultant loss when the market is on a downward spiral.

SIP, many of us may think, is just about investing a pre-decided sum of money at regular time periods.

But there’s more to SIP than what most of us think. There are different types of SIPs.

Maximise returns

First, SIP is not just a tool to invest regularly; it can also be used to maximise returns. Trigger-based SIPs help you achieve this. If you are a market-savvy investor, or at least have been tracking the market moves closely, you can opt for this plan to increase investment in the mutual fund scheme when the market is on a falling spree.

Under the trigger SIP option, you can set the trigger, which can be one of the following events, to make the investment. Net asset value (NAV) or index-level-based trigger — wherein you can make an SIP upon the NAV or the index hitting the trigger level set by you. For instance, if you think the Nifty may fall 5 per cent over the next few days, you can set the Nifty Index level (percentage fall) as the trigger to do your SIP. Once the Nifty hits the target level set by you, the SIP is activated. Likewise, you can set the NAV level (you can specify upside or downside from the current levels) as the investment trigger.

Second, you need not necessarily fix the investment amount, you can invest as much as you can month after month, and this is possible through flexi SIPs. For instance, if you have just got your bonus cheque this month and want to park a portion of it in the MF scheme in which you have ongoing investments, you can opt for a flexi SIP. This helps you dynamically increase or decrease your monthly investment based on your financial position. Similarly, if you have some emergency financial need and hence, need additional money, you can invest less that month so that you don’t have to worry about borrowing or dipping into other investments to meet your financial needs.

No limits

Third, SIP is also a tool that helps you plan long-term goals. Perpetual SIPs help one continue investing for a longer horizon, say, five years or beyond. Typically, mutual fund houses ask for the investment time-frame when you kickstart your SIP. But if you are looking to save for a goal the timeframe for which is not certain but is certainly more than 10-15 years away, you can opt for a perpetual SIP. This will help you continue your investment perpetually, until the time you wish to stop.

Another feature of SIPs that helps you plan for your long-term goals is top-up SIP. Sample this: you get an additional sum of money as annual bonus at the beginning of every year and you want to invest that in the current scheme. You can do it by opting for a top-up SIP. This helps you invest additional sums of money besides your regular monthly SIP investments as and when you have some surplus cash.

However, you need to opt for this at the time of enrolment and also mention the top-up investment in case of fixed top-ups. For instance, if your existing SIP amount is ₹10,000 and you think the additional investment will be ₹ 5,000, you can fix the top-up at ₹5,000. You can have a variable top-up as a percentage of the existing SIP; however, you must still define a cap or maximum that you would like invest as top-up. You need to specify the period for which you can do the top-up. For a monthly SIP, quarterly and annual top-up options are available. For a quarterly SIP, only the annual top-up option is available.

These tools will not only help you invest systematically, but also give flexibility and help maximise returns.

The writer is co-founder, RaNa Investment Advisors.

Published on July 22, 2018
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