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Investing Smarter: The Rise of Smart SIPs in a Traditional SIP World

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Investing Smarter: The Rise of Smart SIPs in a Traditional SIP World

You’re familiar with a regular SIP if you’re a mutual fund investor. You invest a fixed amount each month on a set date, with minimal ongoing management. While this tried-and-true investment strategy guarantees consistency, it may miss out on market opportunities.

Think of a smarter and more complicated version of vanilla SIPs with a dynamic feature that responds to market conditions. That’s what we call Smart SIPs, which adjust investment amounts using a variety of sophisticated algorithms. The goal is to maximize returns by capitalizing on market fluctuations.

Although it may surprise you, it is true.

We’ve created an article about Smart SIPs for smart investors like you. This article explains the fundamental concepts of Smart SIPs, including how they work, how they differ from regular SIPs, and much more. So let’s tune in.

What are SIPs, and how do they work?

A Systematic Investment Plan (SIP) is a method of making a fixed contribution at a pre-determined frequency (monthly/quarterly) in a mutual fund. It’s like creating a financial fitness routine for your money. This is how it works.

Regular Contributions: When you set up a SIP, a fixed amount is deducted from your account each month (or at your preferred frequency). This amount is then invested in a mutual fund of your choosing.

Rupee Cost Averaging: SIPs save you from the stress of timing the market. The mutual fund price will fluctuate from month to month. Your investments accumulate over time, allowing you to benefit from an average cost. This approach is commonly referred to as rupee cost averaging.

What are Smart SIPs, and how do they work?

Smart SIPs are an innovative investing technique in which the SIP amount varies based on market valuations. The guiding principle in Smart SIPs is to Buy Low and Sell High.

Smart SIPs, also known as Flexi SIPs, are automated decisions that use a complex algorithm to calculate the SIP amount by evaluating valuation indicators such as market levels, P/E ratio, P/B ratio, PEG, and other factors.

When you start your Smart amount, you choose the base amount. The base amount (or your SIP amount) is adjusted based on current market sentiments and valuations.

When valuations are low, double the base amount is invested. When the valuations are neutral, the base amount is invested. As valuations rise, the base amount is halved, temporarily invested in liquid funds, or not invested. 

Comparing Smart SIPs and Normal SIPs

Example of Smart SIPs vs Regular SIPs

Let us use an example to illustrate this concept better.

Now, let’s do the check:

Smart SIP led to approximately ₹11,950 higher gains than traditional SIP. However, it is interesting to note that a larger total amount was invested in the case of Smart SIP.

When deciding between these options, consider their risk tolerance and the market outlook.

Benefits of Smart SIPs

Market-Responsive Investing: Smart SIPs adjust equity investments based on market valuations. The equity allocation is done based on two parameters:

1. market trends and sentiments, and

2. technical valuation indicators like the P/E ratio. 

So, to reduce risk during overvalued periods, only a portion of your SIP amount goes into equities or is invested in less volatile vehicles, reducing risk during overvalued periods.

Potential for Better Returns: Smart SIPs aim to optimize returns by capitalizing on market fluctuations. During market downturns, they acquire more assets, potentially boosting overall performance. In addition to rupee-cost averaging, Smart SIPs also do value averaging.

Disciplined Approach: Like traditional SIPs, Smart SIPs encourage regular investing, promote discipline, and harness the power of compounding. They also eliminate emotions from the decision-making process.

Drawbacks of Smart SIPs

  • Algorithm Dependency: Smart SIPs rely on algorithms to determine investment amounts. While this can be advantageous, it also means trusting the algorithm’s accuracy.
  • Market Timing Risk: If the algorithm misjudges market conditions, you might miss out on potential gains during bullish phases.
  • Higher Fees: Some Smart SIPs may charge higher fees due to their dynamic investment approach and frequent reallocations.

Who Should Consider Investing in Smart SIPs?

Smart Systematic Investment Plans (SIPs) are well-suited for you if:

  • You are tech-savvy and are comfortable with automated AI-driven investment strategies.
  • You are a long-term planner and committed to consistent, disciplined investing.
  • You are high-risk tolerant and are willing to navigate market fluctuations.
  • You are comfortable investing higher amounts when the market dips, and the variable SIPs don’t spoil your budget.

The Bottom Line 

Smart SIPs could be a useful tool for investors with a long-term outlook and a tolerance for higher risk. With data-driven and automated algorithms to assess whether markets are inflated, flat, or expensive, your SIP amount differs each month. Your equity allocation also changes depending on the market trends.

Traditional SIPs, on the other hand, are still a reliable and tried-and-true strategy for those who prefer a simpler, more hands-off approach. Encourages disciplined investing when you know how much you’re going to invest each month.

If you want to accumulate wealth over time without actively participating in the market, regular SIPs are better suited to your needs.

To be on the safe side, consult with an experienced financial advisor to determine which approach is most fitting for your specific financial goals. 


  1. Is there a minimum investment amount required for Smart SIPs?

    This can vary depending on the platform offering Smart SIPs.  Normal SIPs can be started with an amount as low as Rs. 100, some platforms require a higher minimum such as Rs. 5000 due to the additional technology and management involved.

  2. Can I customize the investment strategy within a Smart SIP?

    Some Smart SIP platforms may provide customisation options, allowing you to control the aggressiveness of automatic adjustments based on your risk tolerance. You can set your parameters depending on your level of control, risk tolerance, the minimum amount you want to invest, with or without step-up, and your financial goals.

  3. What happens if the Smart SIP algorithm underperforms the market?

    As with any investment strategy, there's a chance the Smart SIP algorithm may not outperform the broader market.  Before you register on any platform to start Smart SIPs, research the platform's track record and how it addresses potential underperformance. 

  4. Are Smart SIPs suitable for investors nearing retirement?

    Smart SIPs perform better when given enough time to grow in the market and show the power of compounding. It requires market timing, so it may not be appropriate for you if you are near retirement and have a shorter investment horizon and a need for capital preservation.

  5. How do Smart SIPs handle rebalancing compared to traditional SIPs?

    Regular SIPs typically have a fixed asset allocation. However, with Smart SIPs, rebalancing is made easier by automation and algorithms that auto-balance your funds based on current market conditions and valuations to provide you with the best returns on long-term investments.

  6. Do Smart SIPs offer tax advantages compared to traditional SIPs?

    In general, traditional and Smart SIPs have similar tax implications. However, if tax savings are one of your goals, you can look into tax optimisation strategies and tax-saving fund options as you get started with SIPs.

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I’m Archana R. Chettiar, an experienced content creator with
an affinity for writing on personal finance and other financial content. I
love to write on equity investing, retirement, managing money, and more.

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