As an investor looking to build wealth over the long term, you have some important decisions regarding how to invest your money. Two options for a systematic investment plan are a regular SIP, where you invest a fixed amount at regular intervals, or a trigger SIP, where your investments are linked to triggers like a market fall.
Determining the right strategy depends on your financial goals, risk tolerance, and investment horizon.
What are regular SIP investments?
To understand regular SIP investing, you must first comprehend the underlying principle – that small, periodic investments in the stock market can yield substantial returns over time through the power of compounding.
An SIP allows you to invest a fixed amount regularly in a mutual fund scheme. You can start an SIP with an amount as low as Rs 500 per month. This regular investment is automatically deducted from your bank account and invested in your selected mutual fund scheme. Also, you can use an SIP calculator to understand how to achieve your investment goals seamlessly.
The key benefits of an SIP mutual fund include –
Low capital required: You can start small and increase over time.
Cost averaging: You buy more units when the price is low and fewer when high, averaging costs.
Compounding returns: Reinvesting earnings to generate earnings on earnings.
Discipline: Automated payments help you stay invested for the long run.
Understanding trigger SIPs
To achieve a trigger SIP strategy, you must first determine the market events or price points that will trigger additional investments. For example, you may increase your SIP amount by 25% whenever the NIFTY50 drops by 10% or more from its 52-week high.
Identify your investment triggers: These could be a market drop, a price decrease for a specific stock or fund you want to buy more of, interest rate changes, or other events. The more triggers you have, the more active your strategy becomes.
Decide how your SIP amount will be adjusted for each trigger: Will you increase the amount by a fixed percentage each time? Double your usual SIP? Invest a lump sum? The approach you choose depends on your financial situation and risk tolerance.
Review and rebalance as needed: Monitor your investments and the events that trigger changes to your SIP. You may need to adjust or remove triggers over time based on your investments’ performance and market changes. Re-evalutating your strategy periodically helps ensure it continues meeting your needs.
Difference between trigger SIP and regular SIP
|Fixed intervals (monthly, quarterly, etc.).
|Triggered based on specific conditions.
|Limited flexibility as the investment amount and frequency are fixed.
|More flexible as it allows adjustments based on triggers.
|Less control over market timing.
|Allows some control over market timing based on trigger conditions.
|Relies on consistent and disciplined investing.
|Can provide a level of risk management by triggering investments under certain conditions.
|Common use case
|Long-term, disciplined investment strategy.
|Capitalise on specific market conditions.
Which investment strategy is best for you?
Trigger SIP and regular SIP are two effective strategies for long-term equity investing. You must evaluate which matches your financial goals, risk appetite and convenience. For most investors like you, a combination of regular and trigger SIP may work well to earn good returns. Make a plan, start investing regularly, and stick to it – your future self will thank you.