Smart SIP Investments- Decoding Them In Brief

A Smart SIPis a highly innovative product tailored for giving an extra edge to your mutual fund investments. In this system, investments are automatically made either across equity schemes or liquid investment schemes on the basis of the safety index margin and some other parameters. To put it simply, a Smart SIP will automatically invest in liquid schemes in case the market is costlier and if it is cheaper, then it will invest more in equity schemes.

Why are Smart SIPs better than their regular counterparts?

Smart SIPs are often considered more flexible and better than regular SIPs (systematic investment plans). An SIP works on the principle of disciplined regular investments, i.e. a fixed sum of money will be deducted from your account each money for being invested at a particular date. Additionally, there is no requirement for timing the workings of the market since a small amount is put in each month. The law of averaging and compounding works to create a corpus for the investor in the long run.

Now that this basic premise is out of the way, one can say that a Smart SIP is about disciplined and automatic investing. This SIP will be investing the monthly sum in equity mutual fund units whenever there is a fairer valuation across markets and will be doubling the monthly amount whenever there is undervaluation in the market. These SIPs will be avoiding fresh investments for equity fund units whenever markets are more expensive. The monthly amount and sales proceeds will then be pumped into liquid schemes. This will later be used for purchasing equity mutual fund units whenever markets become cheaper. These SIPs will naturally help you get better returns as a result and will work on the basis of a specific target of the investor.

A fixed sum in equities will be invested by a regular SIP irrespective of the valuation in the market. As a result, the average rate of acquisition will drop lower over a particular time period since a higher number of units are purchased when the NAV (net asset value) is lower and lesser units are purchased when the NAV is on the higher side. This naturally causes limitations since there is no point in purchasing equities whenever markets are more expensive. Smart SIPs are helpful for correcting this issue, shifting between equity and debt, depending on market valuations.

This ensures more flexible investing and a substantially better corpus over a period of time. This is why Smart SIP are often called Flexi SIPs as well. Think of it as automation when the mutual fund manager can be instructed to purchase more NAV units of the mutual fund whenever the valuations are cheaper in the market and also to buy less whenever valuations are costlier. This becomes a useful option if used for Smallcap and Midcap funds as well. Investors should consider Smart SIPs for increasing their targeted corpus while also garnering better returns on the basis of market valuations and their movements.

Leave a Reply