Sip Types: Know Your Priorities And Act Accordingly With This Complete Guide

By Author: Sonali Kale
Total Articles: 3
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If you think that a Systematic Investment Plan (SIPs) is just a boring kind of plan, then you should think one more time. You might be surprised & glad to understand that there are multiple types of SIPs. If you don’t know these SIP types, here is a piece of brief information to it:

1) Money market funds:
The funds invest in short-time fixed-income bonds like treasury bills, government bonds, bankers’ acceptances, certificates of deposit and commercial paper. They are normally a secure investment, but with a cheaper potential return than other kinds of mutual funds. The Canadian money market investments try to have the net asset value (NAV) stable with $10 per security.

2) Fixed income funds:
The funds buy investments which give a fixed rate of return such as investment-grade corporate bonds, high-yield corporate bonds and government bonds. Then they aim to possess money coming in the investment on a normal basis, mostly with interest that the fund gets. High-yield corporate bond investments are usually riskier than the funds which hold investment-grade and government bonds.

3) Equity ...
... funds:
The funds invest in stocks. The funds are there to develop faster than fixed income or money market funds, so it is normally a higher risk which you can lose money. And you could select from various kinds of equity funds consisting those which specialize in the growth stocks (that don’t normally pay the dividends), the income funds (that hold stocks which pay large dividends), large-cap stocks, value stocks, small-cap stocks, mid-cap stocks, or there could be combinations of all these.

4) Balanced funds:
The funds invest in the mix of fixed income securities and equities. They hope for balancing the aim of attaining greater returns against the danger of wasting money. Most of the funds go with a formula to split the money into the different kinds of investments. They are likely to have more risk than fixed income investments, but less risk than pure equity investments. Aggressive funds have more equities & lesser bonds, and conservative funds have fewer equities with bonds.

5) Index funds:
The funds intend to follow the production of the specific index like the TSX/S&P Composite Index. The utility of the mutual fund would go up or down along with the index. Index funds usually have cheaper costs than having directed mutual funds as the portfolio manager don’t have to do as much analysis or get as many decisions on investment.

6) Specialty funds:
The funds concentrate on specialized mandates like commodities, real estate or socially responsible funding. For instance, a socially responsible fund might invest in the companies which help human rights, diversity, environmental stewardship & might avoid organizations involved in tobacco, alcohol, weapons, gambling and the military.

7) Fund-of-funds:
The funds invest in other funds. Alike balanced funds, they also go for making asset allocation & diversification simply for the investor. The MER for fund-of-funds tends to be bigger than the stand-alone mutual funds.

8) Top-up SIP:
These SIPs let you increase your SIP amount on the regular time period. Such a feature lets you take benefit of a mutual fund scheme which is performing fine by raising the amount of the contribution on regular time. Also, it expedites the investor to fund a bigger amount with a rise in her/his income.

9) Flexible SIP:
The kind of SIP gives the feature to enhance or decrease the SIP money according to the cash flow of the investor. So, as an investor challenges cash crunch because of some reasons, one could skip the payment of a few SIP installments until the financial condition comes back to normal. On the other hand, if the investor gets a bonus or makes some freebie gain, one could deposit the part or full amount for the SIP account.

10) Perpetual SIP:
Usually, an investor goes for the SIP mandate with a fixed duration, say, 1 year, 3 years or 5 years & so on, but if the investor does not mention the end date in the SIP mandate, it is considered to be a perpetual SIP. It leaves the option up for the investor to obtain the investment at the time of his selecting or while the financial goals are scored. Though, it is always good to begin SIP for a fixed duration as it implants financial discipline & nourishes goal-based approach.

11) Trigger SIP:
This kind of SIP is fitting for those with some awareness and knowledge of financial markets. An investor could set either an index level, NAV, event or some particular day to start the SIP. But this kind of SIP is not acceptable as it stimulates speculation.

Before you spend anything, get that the fund’s investment plans & be sure that you are satisfied with the level of risk. Even if 2 funds are of a similar kind, the risk & return characteristics might not be equal. Know more about how things work with mutual funds. You might also like to speak with some financial advisor to support to decide what types of investments best meet the needs.

Active Vs Passive Management:
Active management means that the portfolio manager gets & sells funds, attempting to beat the return of the overall market or another recognized benchmark. Passive management includes getting a portfolio of securities intended to track the completion of a benchmark index. The investment’s holdings are only connected if there is an adjustment in the elements of the index.

You could know about a fund’s investment plan with a reading of the Fund Facts & simplified prospectus. So, get to know everything in detail, remember the types and factors while you decide and go for the SIP investments for a better life.

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Author’s Bio:
The author is a columnist in a leading English newspaper. He writes everything about the economy, investment and finance. He is an expert with an MBA degree in Finance. He also shares his views here on a regular basis. Read his blogs about investment, SIP, mutual funds, etc. here.