Just as you add more features to your smartphone by updating your applications, new mutual fund Systematic Investment Plan (SIP) facilities help improve your financial well-being.

There is no doubt that SIP itself is an innovative way of instilling a regular investing habit; it is an ever-evolving, convenient investment option. In order to attract more investors to mutual fund schemes, fund houses have added several new features to the plain vanilla SIP to complement the regular form of investing.

Let us see what more you can do with your monthly SIP…
 

1. Step-up SIP or Top-up SIP
   
   Mr Anshul Shah, a 27-year-old graphic designer, follows a disciplined approach with savings and invests in equity mutual funds through a SIP. Last month, he was promoted and received a good salary hike. With the surplus income, he plans to invest an additional amount in new funds to achieve his goal of buying a house.
   
   However, after doing much research, he realised that funds he has invested in are the best. He tried looking for other investment avenues. But other options did not appease him.
   
   Step-up SIP (also known as Top-up SIP) is the solution in this situation. Fund houses now offer a step-up facility, where you can increase your SIP amount at regular intervals. For instance, Mr Shah can now raise his monthly SIP amount with just one click.
   
   With this facility, you can start with a small amount and gradually increase the amount you invest. This will not only add to your initial principal, but will also inculcate a long-term approach of investing.
   
   To add on, you have an option to have a fixed or variable top-up (Top-up Cap) amount and a Cap Year. You can either set a fixed limit to your top-up amount or keep it variable. Also, you can set a date until when you would wish to continue your top-up facility.
   
   Top-up option must be specified at the time of enrolment. The amount can be as low as Rs 500 and in multiples of Rs 500 only. Further, the top-up details cannot be modified once enrolment is done. Hence, be sure before applying for it. A half yearly and yearly SIP top-up frequency is available for monthly SIP. Quarterly SIP offers top-up frequency at yearly intervals only. If you miss out on informing your top-up frequency it is assumed to be at yearly intervals.
   
   Consequently, as our income increases, so do our expenses. Therefore, increasing your investment level will protect you on rainy days.
   
   Many a times, investors continue the same monthly investment through SIP for over 5-7 years. Though they may have earned good returns on the investment, they would have lost out on earning an additional income had they topped up or stepped-up their SIP. Adding up the SIP amount regularly is an easy way to build up wealth.
    
2. Pause SIP
   
   On the contrary, what if Mr Shah loses his job tomorrow?
   
   Do you think he will have to stop down all his SIP investments?
   
   No! The SIP Pause facility will save him in such a difficult phase, allowing him to stop an existing SIP plan for a period of 1 to 3 months.
   
   In other words, if you are in financial distress and SIP payments will restrain your budget in a particular month, you can pause your SIP plan for a while and resume once normalcy returns.
   
   A short-term crunch should not be a cause of worry. It should not stop you from attaining financial freedom. But you too, ought to proactively ensure that your long-term financial wellbeing isn’t being jeopardised.
    
3. Flex SIP
   
   At times, investors do not prefer SIP because of the uncertain cash flows. This lame excuse can stop you from creating wealth. Now a flexible SIP or Flex-SIP facility can help during difficult times. This facility is also available as a Systematic Transfer Plan (STP).
   
   With this, you can adjust your instalment as you would want. Not only this, you can even opt for a trigger-based option. Here the SIP amount is determined with the triggers such as broader marker reaching a particular valuation multiple or scheme NAV changing by certain percentage.
   
   For example, Mr Anshul was rewarded with a bonus of Rs 1,00,000 this month. With the help of Flex SIP facility, he allocates this surplus money directly into one of the funds of his existing portfolio.
   
   This gives you the flexibility to either increase or decrease the amount in any particular month.
   
   So, if you have uncertain cashflow you can opt for flexi facility and still stay invested.
    
4. Trigger SIP
   
   This facility is more viable for experienced investors as it involves some amount of awareness and knowledge.
   
   With Trigger SIP, you can set either an index level, NAV, date or an event. This is to take advantage of any movement in an anticipation. For example, if you know a certain kind of government policy is due next week and that will impact the index crossing a certain mark, you can set it as a trigger date.
   
   Similarly, you can set trigger target for your fund NAV appreciation/ depreciation (in percentage terms) or capital appreciation or depreciation trigger.
   
   However, we believe this will inculcate speculative activities and you should not opt for this. Best is to always have a long-term view in mind to achieve your set of goals.
    
5. Perpetual SIP
   
   Usually when signing up a SIP mandate, you must enter the start and end date. This is for a pre-decided term period say 1 year, 2 year, or 5 year. And once the SIP matures, many a times investors procrastinate and delay renewal due to operational hassles. In turn, they end up missing few instalments, which upsets the saving discipline and affect returns in the long run.
   
   If you leave the end date block blank in a SIP mandate, by default you opt for perpetual SIP. Most fund houses will assume this SIP to continue till 2099, unless you submit/provide a written communication to the fund house. So, once you achieve your goals, you can redeem your funds as per your convenience.

To sum-up...

There are multiple options available, and once you decide everything is possible, your first step to financial freedom is goal setting. Appoint a Certified Financial Guardian who will handhold you, plan your investments and counsel you during financially difficult times.

Although all these SIP facilities give more and more convenience and flexibility to investors, the key is to avoid any short term financial hindrances and stay invested for five years or more. You can take advantage of SIP pause facility when under financial stress. But do not make it a habit because it hinders the path to wealth creation and accomplishing your financial goals.

Remember, the key to financial freedom is perseverance.

Add Comments