Types of Systematic Investment Plans – Definition, Benefits, Types


There are two types of mutual funds investment options- Systematic Investment Plans (SIPs) and Lumpsum. A systematic Investment Plan allows investors to invest a fixed amount at regular intervals. Lumpsum is a one-time investment, generally a large sum of money.

Hence, if a person has ₹50,000 to invest- he can either make a lumpsum investment of ₹50,000 altogether or choose to invest ₹5,000 over ten months according to financial goals.

SIPs are regular and automated contributions of investors made periodically in a mutual fund scheme. Moreover, it helps to plan investments to achieve long-term financial goals. For instance, if one wants to invest ₹2,000 every month for ten years. One can automate these payments for a specific period. Also, one can contribute more or less as per his or her will. The SIP investment tenure is weekly, monthly, quarterly, semi-annually, and annually. The minimum SIP amount is ₹500 per month.

The article mentions the benefits and types of systematic investment plans.

Benefits of Systematic Investment Plan

  • Firstly, SIP helps in rupee cost averaging. One need not time the markets. Investors invest money depending up on various factors like market movements, lack of knowledge, etc., due to which they might lose money. However, SIPs remove the prediction element as investors must invest a fixed amount irrespective of the market’s position. When the market falls, the net asset value (NAV) becomes low. Hence, one gets more units against the investment amount. However, when the market is at its peak, one gets a lesser number of units against the investment amount as the NAV is also high. In the long run, it reduces the average cost per unit. For example, if one decides to invest ₹5,000 per month for five months in a mutual fund scheme. If one invested ₹25,000 as a lumpsum amount in January. The investment value in May would remain at ₹25,000 (250*₹100 NAV). However, due to rupee-cost averaging, the SIP investment value in May becomes ₹25,211 (252.11*₹100 NAV).
Months SIP NAV Units [Contribution/NAV]
Jan 5,000 100 50
Feb 5,000 98 51.02
Mar 5,000 96 52.08
Apr 5,000 102 49.01
May 5,000 100 50
Total 25,000 491 252.11
  • Experts handle the SIP investments. Hence, the person who does not understand financial jargon can benefit from the manager’s expertise and professional management.
  • Moreover, SIP brings financial discipline to a person. One takes extra effort to contribute towards investments and later spends the remaining amount.
  • Lastly, SIP investment returns benefit from the power of compounding. For instance, one invests ₹1,000 in January, on which the returns are ₹100. In February, the principal amount is ₹1,100 (1,000 + 100), on which one will earn interest say 10%. It will continue till maturity.

Types of Systematic Investment Plans

There are five types of systematic investment plans that one can choose before investing as per their financial goals:

Fixed SIP

A fixed systematic investment plan is a plain-vanilla SIP where one must choose the amount, the date and tenure of contribution. It is an automatic process. For instance, if one wants to invest six lakhs in large-cap index funds for up to five years. One can choose to invest ₹10,000 every month for up to five years. However, one should know that the SIPs will automatically terminate in 2099. But 2099 is far away, which one should not worry about now. Even though fixed SIP is the most popular option among investors, there are various other types of systematic investment plans that suit one’s investment style.

Top-Up SIP

A top-up systematic investment plan helps to increase SIP contributions periodically. It is the best option when one’s income increases yearly. One can invest the entire amount or a part of the increment in top-up SIP. For instance, if one’s income is ₹50,000 per month, it increases 10% yearly. In such a case, top-up SIP is the best SIP investment option where one can increase contributions by the entire incremental income percentage (here 10%) or a part of it (say 5%).

Perpetual SIP

A perpetual systematic investment plan is like a fixed SIP without any tenure. Once registered, the SIP amount gets debited from the bank account automatically unless one instructs the fund house to stop withdrawals. Moreover, if one wants to continue to invest in mutual funds for a lifetime or doesn’t want to limit investments up to a certain number of years, perpetual SIP is the ideal option. It also eliminates the need to renew contributions. Also, one can redeem the investments anytime they desire.

Flexible SIP

A flexible systematic investment plan allows to change or skip a few contributions. It could happen due to two reasons. Firstly, SIP contributions depend upon the market conditions. Hence, if the markets have higher valuations, contributions via SIP decrease. On the other hand, they increase once the markets correct and valuations look attractive. There is a valuation matrix based on which the fund houses determine the contributions. However, one gets to decide the minimum and maximum SIP investment amount. Also, one must inform the fund houses about the changes a week before the SIP amount is due.

Trigger SIP

Trigger systematic investment plans allows investors to redeem the SIP amount from the bank account in full or in part or automatically switch to other schemes when the NAV reaches the pre-defined trigger point. It is available for both upside and downside markets. There are various triggers such as NAV, index level, time-based, etc. However, trigger SIP requires experience and knowledge to set triggers effectively.

Types of Systematic Investment Plans



To conclude, one must select SIPs according to their investment styles and financial goals. Moreover, one must also thoroughly understand the SIP functions. Additionally, a systematic investment plan is one of the most rewarding parts of the investment journey as it gives flexibility. It also minimizes the time and effort needed to manage investments. Firstly, choose a mutual fund scheme. Secondly, choose the investment frequency- weekly, monthly, quarterly, semi-annually, or annually. Further, set up a SIP with the fund house after sharing bank details and completing KYC (Know Your Customer). Lastly, the fund house will automatically debit the fixed amount at regular intervals from one’s bank account up to the fixed tenure.