Target Investment Plan or TIP is an ideal target based investment plan. In TIP, Investors can customize investments in conformity with their financial goals. This investment plan works with the end in mind. It works to create a certain corpus within a stipulated time and investment amount. It works quintessentially like SIP. However, the amount invested every month may differ. Generally, more units are purchased when market conditions are bad and vice versa. These units can be uncashed when the financial objective is met.
On the other hand, Systematic Investment Plan or SIP is an investment plan in which one monotonously invests a fixed sum of money over a specified period of time. Thus, leaving one slightly vulnerable to the uncertainty of the market. An investor in SIP will continue to buy when the equity markets are high. For eq, if the equity markets are expensive for three or four years, a SIP investor shall continue to invest a fixed amount in those expensive valuations.
Examples where SIP and TIP may work best: Let’s say an investor is a young father of a 1 year old. The investor may decide to invest Rs. 2000 p.m. in SIP to meet the higher education expenses of the child. This is a great example of when SIP will work best.
Another investor has an 18-year-old daughter and needs to invest a certain sum each month to create a corpus of 20 lacs for his daughter’s marriage. Monthly investment can vary between Rs. 10000 to Rs. 25000. Here a TIP can conveniently create the required corpus. Once the corpus is created, the investor can stop investing and transfer the corpus so created (Rs. 20 lacs in this case) to a safe debt fund.