New variants of SIP - are they worth it ?

The rise in the popularity of mutual funds has increased tremendously during the last two decades. The systematic investment plan as a tool of investing has become a game changer in the world of investing. The SIPs has offered a chance to small investors to get into the world of investing and allowed them to think for a long term investment and plan their retirement life. Just like any other brilliant idea, even the traditional SIPs had to go through a makeover to match the rising popularity and advancement of mindsets. The demand for innovation in plain vanilla SIPs has given birth to two of the new kind of SIPs which cater to the need of investors even more precisely but are these new SIPs a good option for you. Well, that's what we will find out in this article.

What is a SIP? 

 A traditional SIP  or systematic investment plan is a method to regularly invest in mutual funds. As an investment tool, SIP enables an investor to spread its investment over a period of time. These SIPs enables a small investor to invest in a tight budget and at the same time formulates the mindset of regular savings and investing among a new and first-time investor.

 Let us understand this with the help of an example: Mr. X a first-time investor saves a monthly amount of Rs. 5,000 and invests in equity mutual funds.


Now, this is where things get changed the following are the two new versions of SIP:

SIP With valuation trigger :

Apart from the basic concept of SIP. In this variant, the amount of SIP is based upon the level of markets. This variant basically works upon the traces of price-earnings ratio of the market. In simple words, this variant enables you to buy more when the market is low and less when the markets are high or the valuation is up.

Continuing our example of Mr. X, whenever the P/E of the market goes down or we can say the market is low the on the date of SIP an additional amount of Rs. 10,000 will be invested in his portfolio.

SIPs with value averaging :

This third variant let the investor to invest a variable amount every month base upon the desired returns targeted from the investment. The primary difference between the normal SIP and this variant is that in normal SIP the monthly investment amount is fixed. Whereas in this variant the SIP amount keeps on changing based on the predictable worth of your investment.

Further continuing the example: Suppose Mr. X targets to grow his investment by 14 percent per annum a value-averaging SIP will increase or decrease the amount invested every month so that the total worth of his investment remains close to what it should be assuming a 14 percent growth rate. However, Mr. X can always put an upper and lower limit to his SIP amount. So, that he maintains a proper stance as per his monthly budget. For e.g. he can put an upper limit of Rs. 10,000 max or minimum limit of Rs.2,000.

Should you opt these new variants?

No doubt these new variants can give a great edge to your investment return if managed properly but the majority of investors especially new investors, first-time investors or small investors should still stick to the basic SIPs as to go for these new variants you would need to have some extra amount always readily available in your bank account and this will not be feasible to you if you are already on tight monthly budget. However, if you have a surplus amount parked in your bank account it is better to invest that amount rather than waiting for the market to be bearish.