Expert Author Kunal Agrawal
Money is the biggest motivator in this world. With the introduction of electronic ways of maintaining the records, though the 90% of the world's money is only on papers, the desire to see astronomical figure under the head of 'bank balance' never lost the heat. SIP investments give the investors an excellent 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 advisors know that. Perhaps, this is the reason there are myriad SIP plans for each kind of investor. Some of the investment plan types for SIP worth mentioning are:
1. Growth Plans: A person can choose a particular amount to invest in SIP every month, and the money will keep on accumulating. Depending upon the percentage of equity and debt component, your investment will see the growth. And, at the end of the term, your money plus the returns become your fund value. During the tenure, if the fund does not perform as expected, the investor is free to switch to other better-performing funds.
2. Dividend Plans: Companies need capital. To raise the capital, they grant ownership to the investors in proportion to the amount the latter put at the stake. At regular intervals, mostly annually, companies return a percentage of profits earned to their investors in the form of the dividend. SIP plans of dividend type are good for those people who want some returns at regular intervals. Dividends give a vague idea of how the funds are performing.
3. Fixed Maturity Plans: These are mostly closed-ended mutual funds that invest in debt instruments. Since, the maturity is pre-defined, investor feels somewhat safer. If invested somewhat beyond a year, the returns on it are free from tax liability. Thus, if you want to stay away from the tax liability that is bound to come along with fixed deposits, you can consider investing in FMP's. These can be dividend plans too.
Depending upon 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 are focussed entirely on market-linked instruments such as stocks of a company. Since the value of stocks varies as per the market index, the risk is higher. However, when retained for a longer period, you can enjoy the steep rise in the value that no other instrument offers.

  • Debt Funds: When you opt for debt funds, you money is invested in those instruments that remain unscathed from the market's movements. Mostly, fund managers invest the money in those certificate of deposits and commercial papers whose maturity coincides with the term chosen by the investor. Thus, you get a fixed return; that is why, managers at the very start of the scheme, tell their clients clearly about the investment avenues as well as the expected returns.
The third premise for classification of SIP plans is lock-in period. Investors can opt from the following kinds of SIP investment plans depending upon whether they can spare the money for certain period or not:
A. Open-ended funds: As an investor, you enjoy full control over the money. You need not stick to the investment for the term chosen and can withdraw funds as and when required. There is no guarantee of how much returns you will earn, but the positive part is that these funds are absolutely liquid. You can choose to invest at any given point of time after the launch.
B. Closed-ended 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 during a fixed period that immediately follows the launch of the scheme. SEBI, to provide relief to the investors, have granted two exit routes - namely repurchasing and listing in the index.
To conclude, the world of SIP investments is really vast, and it offers something or the other to all kinds of investors. Higher returns, flexibility to switch, freedom to withdraw partially, and to top it all, the tax benefits are some of the advantages that are encouraging people to invest in SIP plans.