Finding it difficult to buy the necklace you so desired or falling short of funds for your dream holiday? There's a way to stash smaller amount of funds in a planned manner through Systematic Investment Plans (SIP), a nifty tool to start multiplying your income.
A SIP is a relatively less-risky and simple way of investing a fixed amount regularly in a disciplined manner into mutual funds without worrying about equity market gyrations or interest rate cycles. You can invest a pre-set amount each month for the required period and start building your savings kitty, based on your risk appetite.
Top-performing SIPS can earn you a handsome return of over 20 per cent over a 5 to 10-year investment period. According to data from Value Research, which tracked 202 diversified equity funds, the highest return on a 5-year SIP was 33.74 per cent with an average return of 16.64 per cent.
Apart from regular SIPs, several variants have also been introduced by select fund houses and online mutual fund distributors. Options offered on the platter include Step-up SIP, Flexi SIP, Target SIP and Portfolio SIP that cater to the needs of various investors.
Step up SIP
As your age and earnings increases, your SIPs should be fine-tuned too. A facility to enhance the SIP amount by a fixed some at pre-set yearly or half yearly intervals is available through step-up SIP – also called SIP booster, SIP Top-up or Growing SIP. That means you need not rush to your advisor as you blow an additional birthday candle.
Consider enhancing the SIP installment amount through Step-up SIP if you're looking to beat the inflation blues and meet your savings goals faster. If you initiate a regular SIP of Rs 5,000 monthly you would be able to accumulate Rs 10 lakh at the end of 10 years considering a growth rate of 10% annually (not an assured rate). But if you enhance the SIP by Rs 1,000 at the end of each year you would have a bulkier corpus of Rs 17.80 lakh in 10 years at the same growth rate. Augmenting the SIP amount is possible under both fresh SIPs and existing SIPs.
Smart SIP/Flexi SIPs
If you get too jittery when the SIP installment date falls when markets have run up or wish you could have parked in higher sum during a particular month post the fall in indices, then Flexi SIP or Smart SIP is your wishing wand. This facility allows an investor to change the investment amount on a monthly basis based on market conditions thus offering a potential to buy more units during an equity meltdown phases.
Self-employed individuals, too, can use this tool to invest based on varying cash flows.
To set up a Flexi SIP, one would need to specify a regular SIP amount and a low and high range of investment per month. The monthly investment would then oscillate between the minimum and maximum amount specified. There is no reason to fret if you couldn't manage to alter the investment amount during a particular month. The regular SIP amount mentioned in the form is debited from your bank.
If you have a goal to meet, say for instance accumulating Rs 3.5 lakh for vacation in three years, then Target SIP back tracks the amount you need to save each month. Based on the existing portfolio accumulation and the growth rate, a requisite amount is debited each month into the SIP account to help you fill the goal bucket in time.
So, if during a particular month you saved Rs 10,000, but the value decreased due to fall in markets then the next SIP instalment would be higher.
Most investors have multiple goals to meet and if you wish to avoid duplication of paperwork, then an SIP mandate for multiple schemes can be set up under 'Portfolio SIP'. This facility is offered by select fund houses, but most online mutual fund distributors and robo-advisory services offer it to investors. So, you can opt for the right asset allocation too by investing, for instance, 50 per cent in a large cap fund, 30 per cent in mid-cap fund, 10 per cent in debt fund and 10 per cent in gold fund through one SIP mandate.
That can help you find the right strategy for your monthly investments across a plethora of mutual fund schemes and build your financial security wall bit by bit.