Explained: What is Trigger SIP, how it works, should you opt for it?: Systematic Investment Plan (SIP) is a very favorite method of common investors for investing in mutual funds. SIP is considered the best way to invest in mutual funds regularly and with discipline. In this, investors generally have to invest a pre-determined amount in mutual funds at a fixed interval, i.e. on monthly, quarterly or yearly basis. Its biggest benefit comes in the form of Rupee Cost Averaging. Due to this, when the price of units decreases, the investor gets more units for the same amount and when the market is at a high, fewer units are purchased. This increases the scope for the investor to keep the average cost of units low in the long run and increase profits. But now apart from this well-known form of SIP, a new method has also emerged, which is called Trigger SIP. Let us understand what Trigger SIP is, how it works and how suitable it is for common investors.
What is Trigger SIP?
In Triggered SIP, the investor sets a ‘trigger’ for his investment based on specific market conditions. Once this trigger is completed, its investment instructions come into effect. This trigger could be related to a change in the net asset value (NAV) of a fund, market movements, changes in the level of an index, or a particular economic indicator. For example, an investor can set a trigger that as soon as the NAV of his favorite mutual fund falls below Rs 500, an additional investment of Rs 50 thousand should be made in it. Apart from this, if the investor wants, he can also set the trigger based on the benchmark index of any fund. Triggers can be set to buy as well as sell mutual fund units.
Also read: FD vs Hybrid Mutual Funds: Want a better option than FD with less risk? These 11 conservative hybrid funds gave up to 19% returns in 1 year
How does Trigger SIP work?
For ease of understanding, you can think of a triggered SIP as an alarm that goes off when the time is right for your investment or redemption. Trigger SIP can be of many types. For instance:
– Price-based trigger: These triggers are activated when the NAV of the mutual fund reaches a particular level.
– Index based trigger:These triggers can be activated when the benchmark index of a mutual fund falls or rises to a particular level.
– Event-Based Trigger:These triggers are applied when a significant event occurs in the market or when economic indicators reach a specified level.
Also read: HDFC MF’s scheme has been tried for 30 years, made Rs 2.12 crore from SIP of 2000, lump sum investment became 76 times
For example, if there is a fall or rise of 200 points in Sensex or Nifty (Nify 50), a trigger can be set to invest a predetermined amount or sell a fixed number of units. These triggers can also be set based on the corpus deposited in one’s mutual fund. For example, if an investor has set a target of depositing Rs 5 lakh for a particular target through his mutual fund SIP, then he can set a trigger to sell his units once this target is achieved. In this way, Trigger SIP can give investors an opportunity to buy more units at lower prices and sell at higher prices, thereby improving their returns.
Also read: This scheme of HDFC MF showed the speed of returns, Rs 1 lakh became Rs 1.95 crore, the money grew 3 times in 5 years and more than 4 times in 10 years.
Impact of Trigger SIP on investment strategy
Trigger SIPs provide an opportunity to invest or withdraw money at the right time, keeping in mind the market conditions. For example, when there is a huge fall in the market, investors can buy more units by increasing the amount invested through Trigger SIP or if there is a possibility of loss in future, they can reduce the loss by selling the units. Similarly, in bullish conditions, investors can also set a trigger to book profit by selling units. Overall, the objective of this strategy is to help investors get better returns compared to regular SIP.
Is Trigger SIP right for you?
The reason for starting Trigger SIP may be to try to give better returns, but is it really such a successful strategy? Actually, this strategy is a strategy of ‘timing’ the market. For common investors, it is better to focus on regular investments through regular SIPs instead of trying to ‘time’ the market i.e. buying at lower levels and making profits at higher levels. Because it is almost impossible for common investors to accurately predict which level of the market is the lowest and when the market is at its peak. This is the reason why there is not much difference between the returns of Trigger SIP and regular SIP in the long term. In fact, in some instances, the returns from regular SIP have turned out to be better.
Also read: Top 6 equity funds of ICICI Prudential, returns ranging from 53% to 67% in 1 year, best scheme doubled money in 2 years
Regular SIP is better for new investors
It can definitely be said that investing through trigger SIP and understanding the market movements and setting the right trigger for investing is not easy for common investors. This is an active investment strategy, which requires constant monitoring of the market. So if you are a new investor, regular SIP is better for you. This is a simple and safe way to take advantage of the long-term prospects of the market, in which you do not have to worry about market fluctuations. Trigger SIP can be an option for experienced investors who are confident that they can earn better returns by correctly predicting the market condition. Whatever be the SIP, its benefit is only in the long term. If you want to invest in equity through SIP, then definitely keep in mind the market risk associated with it.