Investing in mutual funds via the Systematic Investment Plan (SIP)<\/a><\/strong> mode has become a popular choice for many investors. This facility allows you to invest a fixed amount at regular intervals in the mutual fund scheme of your choice. Such a disciplined approach to investment helps to create wealth over the long term.<\/p>\n\n\n\n [Read: <\/strong>What is SIP?<\/a>]<\/p>\n\n\n\n Over the years, mutual fund houses have introduced several new SIP features<\/a> to cater to the needs of different types of investors. The Smart SIP option is one of them.<\/p>\n\n\n\n What is Smart SIP and how does it work?<\/strong><\/p>\n\n\n\n Smart SIP, also known as Flex SIP<\/a>, allows you to vary your SIP contributions based on the movement of pre-defined criteria such as index level, PE ratio, etc. For instance, when the market goes down below a pre-determined level or a key ratio like P\/E, the Smart SIP option kicks in i.e. additional amount will get invested compared to the regular SIP. Similarly, some fund houses also allow a lower amount to be invested if the markets turn expensive. The trigger level is usually based on an algorithm that determines whether the market is cheap or expensive.<\/p>\n\n\n\n Axis Mutual Fund<\/a>, HDFC Mutual Fund<\/a>, and Kotak Mutual Fund<\/a> are among fund houses that offer the Smart SIP facility.<\/p>\n\n\n\n It is important to note that the features\/strategies of the Smart SIP facility related to the maximum amount that will be invested in each instalment may differ from one fund house to another. This facility is only available for open-ended equity-oriented mutual fund schemes. Furthermore, the facility is available only under the Growth option of equity schemes.<\/p>\n\n\n\n In the case of schemes of Axis Mutual Fund and HDFC Mutual Fund, the amount to be invested in each instalment will be higher of:<\/p>\n\n\n\n\n <\/p>\n\n\t OR<\/p>\n\t<\/li>\n\t (fixed amount to be invested per instalment * number of instalments including the current instalment) – market value of the investments already processed through Flex SIP<\/em><\/p>\n\n\n\n On the other hand, Kotak Mutual Fund’s Smart SIP facility allows you to reduce your SIP instalment to half of the base amount when the market valuations are expensive and double when market valuations are cheap. The SIP amount will remain unchanged when markets are neutral.<\/p>\n\n\n\n In the below example, the regular month SIP amount is Rs 5,000. Let’s assume that the fair level of the equity market is at 52,000. If you opt for the Smart SIP, the monthly contribution deducted will be double of the regular SIP amount i.e. Rs 10,000 instead of Rs 5,000, whenever the market level falls below the 52,000 level. On the other hand, whenever the market rises above the 52,000 level, the SIP contribution for those months will be half of the regular SIP contribution.<\/p>\n\n\n\n Do note that the facility to reduce the SIP contribution during market highs may not be available with every mutual fund house that offers the Smart SIP facility.<\/p>\n\n\n\n Table: Difference between SIP and Smart SIP<\/em><\/strong><\/p>\n\n\n\n (Note: The figures are for illustration purpose only) <\/p>\n\n\n\n As we can see in the illustration above, Smart SIP investment generated around Rs 15,000 more gains than the traditional SIP. Notably, the total amount invested was higher as well.<\/p>\n\n\n\n Should you opt for Smart SIP?<\/strong><\/p>\n\n\n\n Being a relatively complex investment strategy, Smart SIP may not be suitable for most retail investors, especially new and low-risk investors. If the market is under a prolonged bear phase, a higher sum will get debited for each SIP contribution, which can put a burden on your cash flows. Likewise, if you have opted for a Smart SIP wherein a lower amount gets invested in every instalment when the market is in overvalued zone, it can result in your investment falling short of the targeted amount if the phase continues for an extended period of time.<\/p>\n\n\n\n Moreover, uneven investments in a particular scheme can disrupt your asset allocation plan. Maintaining the right asset allocation is of utmost importance to achieve an optimal risk-reward balance of your investment portfolio.<\/p>\n\n\n\n Thus, for most investors, regular SIP is enough to create wealth over the long term. SIP in itself is a time-tested investment strategy that helps you become a successful investor by investing consistently over the long term despite ups and downs of the market. Through regular SIPs, you can invest a small fixed amount pre-specified intervals so that you can take advantage of different market levels rather than investing too much or too little in a particular market phase.<\/p>\n\n\n\n\n\t
\n\t\n\t\t
\n\t\t\t Month<\/b><\/td>\n\t\t\t Market level<\/b><\/td>\n\t\t\t NAV<\/b><\/td>\n\t\t\t Regular SIP<\/b><\/td>\n\t\t\t Smart SIP<\/b><\/td>\n\t\t<\/tr>\n\t\t \n\t\t\t Amount Invested<\/b><\/td>\n\t\t\t Units Bought<\/b><\/td>\n\t\t\t Amount Invested<\/b><\/td>\n\t\t\t Units Bought<\/b><\/td>\n\t\t<\/tr>\n\t\t \n\t\t\t 1<\/td>\n\t\t\t 50,000<\/td>\n\t\t\t 20<\/td>\n\t\t\t 5000<\/td>\n\t\t\t 250.000<\/td>\n\t\t\t 5000<\/td>\n\t\t\t 250.000<\/td>\n\t\t<\/tr>\n\t\t \n\t\t\t 2<\/td>\n\t\t\t 52,000<\/td>\n\t\t\t 22<\/td>\n\t\t\t 5000<\/td>\n\t\t\t 227.273<\/td>\n\t\t\t 5000<\/td>\n\t\t\t 227.273<\/td>\n\t\t<\/tr>\n\t\t \n\t\t\t 3<\/td>\n\t\t\t 51,000<\/td>\n\t\t\t 21<\/td>\n\t\t\t 5000<\/td>\n\t\t\t 238.095<\/td>\n\t\t\t 10000<\/td>\n\t\t\t 476.190<\/td>\n\t\t<\/tr>\n\t\t \n\t\t\t 4<\/td>\n\t\t\t 49,000<\/td>\n\t\t\t 19<\/td>\n\t\t\t 5000<\/td>\n\t\t\t 263.158<\/td>\n\t\t\t 10000<\/td>\n\t\t\t 526.316<\/td>\n\t\t<\/tr>\n\t\t \n\t\t\t 5<\/td>\n\t\t\t 47,000<\/td>\n\t\t\t 17<\/td>\n\t\t\t 5000<\/td>\n\t\t\t 294.118<\/td>\n\t\t\t 10000<\/td>\n\t\t\t 588.235<\/td>\n\t\t<\/tr>\n\t\t \n\t\t\t 6<\/td>\n\t\t\t 48,000<\/td>\n\t\t\t 18<\/td>\n\t\t\t 5000<\/td>\n\t\t\t 277.778<\/td>\n\t\t\t 10000<\/td>\n\t\t\t 555.556<\/td>\n\t\t<\/tr>\n\t\t \n\t\t\t 7<\/td>\n\t\t\t 50,000<\/td>\n\t\t\t 20<\/td>\n\t\t\t 5000<\/td>\n\t\t\t 250.000<\/td>\n\t\t\t 5000<\/td>\n\t\t\t 250.000<\/td>\n\t\t<\/tr>\n\t\t \n\t\t\t 8<\/td>\n\t\t\t 52,000<\/td>\n\t\t\t 22<\/td>\n\t\t\t 5000<\/td>\n\t\t\t 227.273<\/td>\n\t\t\t 5000<\/td>\n\t\t\t 227.273<\/td>\n\t\t<\/tr>\n\t\t \n\t\t\t 9<\/td>\n\t\t\t 53,000<\/td>\n\t\t\t 23<\/td>\n\t\t\t 5000<\/td>\n\t\t\t 217.391<\/td>\n\t\t\t 2500<\/td>\n\t\t\t 108.696<\/td>\n\t\t<\/tr>\n\t\t \n\t\t\t 10<\/td>\n\t\t\t 54,000<\/td>\n\t\t\t 24<\/td>\n\t\t\t 5000<\/td>\n\t\t\t 208.333<\/td>\n\t\t\t 2500<\/td>\n\t\t\t 104.167<\/td>\n\t\t<\/tr>\n\t\t \n\t\t\t 11<\/td>\n\t\t\t 55,000<\/td>\n\t\t\t 25<\/td>\n\t\t\t 5000<\/td>\n\t\t\t 200.000<\/td>\n\t\t\t 2500<\/td>\n\t\t\t 100.000<\/td>\n\t\t<\/tr>\n\t\t \n\t\t\t 12<\/td>\n\t\t\t 53,000<\/td>\n\t\t\t 23<\/td>\n\t\t\t 5000<\/td>\n\t\t\t 217.391<\/td>\n\t\t\t 2500<\/td>\n\t\t\t 108.696<\/td>\n\t\t<\/tr>\n\t\t \n\t\t\t Total units<\/b><\/td>\n\t\t\t 2870.810<\/b><\/td>\n\t\t\t 3522.401<\/b><\/td>\n\t\t<\/tr>\n\t\t \n\t\t\t Total investment<\/b><\/td>\n\t\t\t 60000<\/b><\/td>\n\t\t\t 70000<\/b><\/td>\n\t\t<\/tr>\n\t\t \n\t\t\t Final value<\/b><\/td>\n\t\t\t 66029<\/b><\/td>\n\t\t\t 81015<\/b><\/td>\n\t\t<\/tr>\n\t<\/tbody>\n<\/table>\n<\/div>\n<\/center>\n\n\n\n\n