Flexi or variable SIPs are in vogue.
Recently, Kotak Mahindra MF has introduced a variable SIP facility called Flex SIP/STP in which the amount of SIP is decided on the basis of trailing P/E ratio. The SIP amount to be transferred under this facility will be determined on the basis of the P/E band of Nifty 50 Index.
However, unlike in variable SIP facility, the fund house doesnt give an option to decrease the SIP amount. That means, investors will have to invest at least the base SIP amount which they opt for at the time of investment.
The fund house says that this facility will enable investors to take advantage of market movements by investing higher amounts when the markets are low. If the P/E ratio is greater than 15, then the specified amount (base SIP) gets invested. If the P/E ratio is less than or equal to 15, then the fund house will suggest to top up SIP with up to 3 times of base amount.
In a press release issued by the company, the fund house has said, Valuation wise, the P/E ratio of Nifty 50 Index at 15 is an attractive or cheap zone. Therefore, investing more in this phase will ensure better wealth creation over a period of time. Historical evidence suggests it occurs only around 30% of the time. Hence, it is unlikely to put undue pressure on the day-to-day finances of the investor.
Nilesh Shah, Managing Director, Kotak Mahindra MF said, By introducing Flex SIP, we are going a step further to help our investors better utilize market volatility. It is an investment facility that enables investors to get more out of their SIP investments. It allows investors to take greater advantage of the market valuations, which is the genesis of sound investing fundamentals. This in turn will help them achieve their investment goals.
Besides AMCs, Chennai based distributor FundsIndia also provides such a facility which is called Value Averaging Investment Plan (VIP) through which investors can alter SIP amount based on their choice. However, FundsIndia recommends SIP amount on the basis of performance of the fund. For instance, if the fund performs better than the expected value in the previous month, then the amount invested in the subsequent month would be proportionally lower. If the fund performs worse than expected in the previous month, then the amount invested in the subsequent month would be proportionally higher.