Money is the greatest motivator in this world. With the introduction of electronic ways of keeping records, even though 90% of the world’s money is only on paper, the desire to see astronomical figures under the heading of ‘bank balance’ never lost steam. SIP investments provide investors with a great excuse to save and save more and emerge a winner in the battle called ‘life’.
Nobody can deny the fact that people are born with different instincts; even investment advisers know this. Perhaps, this is the reason why there are countless SIP plans for every type of investor. Some of the types of investment plans for SIP worth mentioning are:
one. Growth plans: A person can choose a particular amount to invest in SIP each month, and the money will continue to accumulate. Depending on the percentage of the equity and debt component, your investment will see growth. And, at the end of the term, his money plus the returns become the value of his fund. During the tenure, if the fund does not perform as expected, the investor can switch to other better performing funds.
two. Dividend plans: Companies need capital. To raise capital, they grant ownership to investors in proportion to the amount they put on the line. At regular intervals, mostly annually, companies return a percentage of their profits to their investors in the form of dividends. Dividend-type SIP plans are good for those who want returns at regular intervals. Dividends give a vague idea of how the funds are performing.
3. Fixed Maturity Plans: These are mostly closed-end mutual funds that invest in debt instruments. Since the expiration is predefined, the investor feels somewhat more secure. If invested for more than a year, the returns are tax-free. So, if you want to stay away from the tax liability that comes with time deposits, he may want to consider investing in FMP. These can also be dividend plans.
Depending on where the money is invested, SIP investment plans can be divided into: equity funds and debt funds.
- Equity Funds: As the name suggests, the funds focus entirely on market-linked instruments, such as company shares. Since the value of shares varies according to the market index, the risk is higher. However, when held for a longer period, you can enjoy the sharp increase in value that no other instrument offers.
- Debt Funds: When you opt for debt funds, your money is invested in those instruments that are unscathed by market movements. For the most part, the fund managers invest the money in those certificates of deposit and commercial paper whose maturity coincides with the term chosen by the investor. So you get a fixed return; that is why the managers, from the beginning of the scheme, clearly inform their clients about the investment paths and the expected returns.
The third premise for the classification of SIP plans is the blocking period. Investors can choose from the following types of SIP investment plans depending on whether they can save the money for a certain period or not:
HAS. Open Funds: As an investor, you enjoy complete control over money. You do not need to stick to the investment during the chosen term and can withdraw funds when necessary. There is no guarantee of how much profit you will make, but the upside is that these funds are absolutely liquid. You can choose to invest at any time after launch.
b. Closed Funds: These SIP plans have a lock-in period. An investor cannot withdraw money before the completion of five or seven years. He can invest in these only for a fixed period immediately following the launch of the scheme. SEBI, to provide relief to investors, has granted two exit routes, namely buyback and inclusion in the index.
To conclude, the world of SIP investments is really wide and offers one thing or another to all types of investors. Higher yields, flexibility to switch, freedom to partially withdraw, and to top it off, tax benefits are some of the advantages that are encouraging people to invest in SIP plans.