Types of SIPs and how are SIP returns determined


An systematic investment plan (SIP) works on the fundamental rule of periodic investment, wherein you must invest a small and predetermined amount in a preferred mutual fund over a long time period to generate a huge corpus to meet your financial goal. Periodic intervals in an SIP investment are based on your convenience, i.e., it may be weekly, monthly, quarterly, half yearly, or annually. Also, for most SIP mutual fund investments, the minimum investment amount starts from just Rs 500 per month, with some starting at Rs 100. However, note that SIPs, like mutual funds, have different types, which you must be well-versed with before investing in them. Discussed here are 4 different kinds of SIP investments.

Different SIP investment types

  • Top up SIP

As you grow in your life and career and begin earning more, you must use this top-up SIP option to enhance your periodic SIP investments. Under the top-up SIP option, you can enhance your prevailing SIP figure periodically. For instance, you can enhance your prevailing SIP investment of Rs 5,000 per month by Rs 2,000 after every 1 year; this means post 1 year, your monthly SIP contribution would be Rs 7,000 and after another 1 year, it will increase to Rs 9,000 and so on. Investing in mutual funds through a top-up SIP mode may allow you to reach your goal faster.

  • Perpetual SIP

In a perpetual SIP, there is no defined end date set when the SIP would stop. Your periodic instalments constantly get invested until you request to stop the SIP.

  • Flexible SIP

A flexible SIP comes with the convenience to decrease or increase your periodic SIP contribution according to your cash flow. Though there is a specified fixed contribution amount when you begin the flexible SIP investment, you have the choice to change the investment amount at least a week before the contribution date. Managing a flexible SIP is simpler if you use the online mode to invest in it.

  • Trigger SIP

If you are an experienced investor, you may go for the trigger SIP investment option. Here, you can set a trigger to automatically redeem your SIP investment or switch from an existing mutual fund scheme to another scheme in the case of volatile market conditions.

How can you determine the return on your SIP?

An SIP (a.k.a. systematic investment plan) is an important instrument using which you can form your wealth by investing your investible surplus at pre-determined dates. Each time you make an investment in a mutual fund through the SIP route, you receive units of a mutual fund, which are prefixed according to the net asset value (NAV) of the selected scheme at the investment time. As time passes, you accumulate many mutual fund units, and this is when it becomes tough to compute the return rate of the investment over a time period. To determine your returns on SIP mutual funds, you can use the XIRR (extended internal rate of return) function in excel. This function allows you to compute the internal return rate of investments that have happened over distinct times.