SIPs or Systematic Investment Plans enable to invest regularly with a sense of discipline help accumulate wealth over a longer term. However as the markets have evolved over the years and sense has developed regarding the different investor needs and owing to them have now come about new variants of SIP.
SIPs based on the P/E or price to earnings multiple of the market index: The idea here is that investors as per the market conditions deploy their money month over month. This implies herein P/E of the market index is the prime valuation trigger i.e. investor gives in higher amount towards the investment when the markets are cheaper, and lesser amount is deployed, when the markets are expensive.
Say, for instance an investor who invest in a regular scheme and invest Rs. 5000, can give a mandate that when the P/E of the Nifty goes below 15 on the date of SIP debit, Rs. 10,000 should be debited as against Rs. 5000 for that month.
Value-averaging SIPs: In this category, basis the expected or targeted return, investors invest in SIPs. And the only major difference is that these SIPs aim at keeping the worth of the investment at a predictable level and hence the amount of invested money can vary on a month on month basis.
So, considering that investor has expected an annual rate of return of 12% from his or her value-averaging SIPs then the amount of investment differs such that the total worth remains close to that of investment.
Also, herein there is a provision to give higher or lower limit which can be provided by the investor such that to meet the targeted amount, the amount of investment i.e. deployed is not erratic.
And so for investors who can manage the variation in the investment amount, they can expect a slightly higher yield in comparison to regular or traditional SIPs.