Fine Tune Your Investment Process By Investing In New Sips

Wealth managers and distributors are advising clients to go for new variants of SIP mutual funds that work differently from the current system of investing on the same day every month. Most of the big fund houses have now started offering variants of SIP. For example, there is STP or a systematic transfer plan, where you would invest less, when the net asset value (NAV) is high and more when NAVs are low. It is also tuned to redeem the excess when portfolio value is more than target value and reinvest in the debt scheme. Then, there are prepaid SIPs, where investors have an option of transferring a fixed amount from either a liquid fund or his bank account to an equity fund by setting up a trigger. If the Nifty falls by 1 per cent or 2 per cent, an investor can opt to shift a predetermined amount into an equity fund. I also heard of some power SIP, where investors need to start an SIP in a debt fund of the fund house with an initial investment that is equal to 6 times

Systematic investment plans (SIPs) are not magic. Their superiority to lump sum investments is not a matter of probability or even psychology but an absolute law. What this means is that, most of the time, under most circumstances, over a sufficiently long period of time, SIPs will do better.To understand this, one just has to review what a SIP is and what it does. SIP is a regular investment in a fund of a fixed amount at a fixed frequency, generally monthly. SIPs neatly solve few problems that prevent investors from getting the best possible returns from mutual funds. For instance, since SIPs mean investing with a fixed sum regularly regardless of the NAV or market level, investors automatically buy more units when the markets are low. This results in a lower average price, which translates to higher returns.