Most individuals have heard of Systematic Investment Plans or (SIPs). Many have spoken of the advantages that they have of averaging prices, during downturns. A lot has also been written on the advantages and disadvantages of SIPs over more traditional investments.
Understanding what is variable SIP?
Everybody knows the logic that you make money when you buy low and sell high. But, would you not want to buy more when the market is low? In a traditional Investment Plan (SIP), you may not necessarily alter your plan.
In a variable SIP, you tend to alter the plan to increase the amount through higher allocations, when the markets are trading lower.
Now, you begin by setting a target for your corpus, depending on that corpus and how it moves, you can alter the SIP, which actually is the variable SIP.
Usually, you can talk to the fund house, which decides on the particular level that has been set for the index - both up and down. Depending on that your investments in variable SIP can fluctuate.
Disadvantages of variable SIPs?
Variable SIPs have some disadvantages as follows:
1) Not suitable for salaried people
Salaried individuals find it difficult to buy variable SIPs, simply because they have a pre-determined income and really may not be able to alter their investment every month.
So, those who have business income, may be more suitable to opt for this investment format.
2) Needs to be monitored on an ongoing basis
You need to monitor your portfolio and be prepared to make changes accordingly. What this means is when the markets have dropped, you need to be prepared for extra allocation of funds.
So, you need to make funds available.
3) May need to keep adding in case of severe fall
In case you have a specific target of your portfolio in mind, you would have to keep adding, if there is a particular portfolio target in mind.
4) Systematic Fund Transfer may work better
One of the big disadvantages of the Variable SIP is that it maybe more advantageous to work on the Systematic Fund Transfer Plan.
Say for example, if you have money in liquid or debt funds, you can systematically move money to Equity schemes, which can help you. In this way Systematic Transfer Fund is more beneficial than a SIP.
There is no straight jacketed policy when it comes to investment. While one scheme may work for one, there maybe one scheme that works for another. Some may prefer a variable SIP, others a simple SIP, while others may stick to a Systematic Transfer Plan.
You need to examine your own plans, your own age and your own objectives, before investing.