Investors should not link their short-term goals with schemes that allow flexibility in payment.
Investors, while committing to systematic investment plans (SIPs), are often worried whether they would be able to make the payments regularly on a monthly/quarterly basis. “What happens if I am unable to pay my instalment one month? Or, if there is a shortage of cash for a few months,” wondered Anurag Sen, while signing the investment form for a planned monthly SIP outgo of Rs 20,000 a month in four schemes.
His distributor assured him that if he did not have the adequate balance for a particular month, it really did not matter. For one, the investment would continue to earn returns, though it will be one instalment short for the year. Next month, the same amount would be deducted, provided there was sufficient balance.
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“But what if my expenditure increases due to unavoidable circumstances and I have to reduce the amount for a few months,” Sen asks. The answer: No, the amount cannot be reduced mid-way because banks will not allow it.
For the likes of Sen, there is an option. FundsIndia.com, an online financial services provider, has launched flexi- SIPs. These are similar to regular SIPs. In addition, these will also allow you to alter your investment levels, according to your financial situation. Srikanth Meenakshi, director, FundsIndia.com, says flexi-SIPs will be useful for new investors who are not sure about the amount they will be able to save.
Just like a regular SIP, an investor can choose a mutual fund scheme, a regular investment amount and a monthly investment date in a flexi-SIP. The investor will also have to choose a maximum investment amount. The ECS mandate will be issued for this maximum amount. This amount can be as high as 10 times the regular investment amount. And, one need not change the amount every month. If you want to change the amount in a particular month, the regular amount will be invested like any other SIP.
After this, every month, the investor will have the flexibility to set the amount for the next SIP instalment. It can be any amount between the minimum required for the scheme and the maximum set by the investor. But the request has to be sent seven days in advance, as the portal will have to inform the bank.
The minimum investment amount will vary between fund houses. Typically, it is between Rs 500 and Rs 1,000. Flexi-SIP is available across all schemes that accept SIPs from the 33 mutual fund funds on the FundsIndia.com’s online platform.
K Joseph Thomas, head-research and advisory at Aditya Birla Money, says, “When the markets are low or at a better valuation, one can put in more money. An investor can also increase his investment when he has more money to invest.”
Although it might be a good option to take advantage of fluctuations in the equity markets through this method, ideally, the idea should not be to time the market. Investing through SIPs is done to discipline the investment process. One would be tempted to reduce investment in bad times.
Ideally, in a falling market, regular SIPs help you garner more units of the scheme. This helps the investor to get better returns when the market goes up. But investors fear to put in money in the falling market. And, in a rising market, when net asset values are high, they are more than willing to invest.
Such an option allows the flexibility. But one would need to have the discipline to utilise for the right reasons.
Also, one should not link flexi-SIP investments to short-term goals, say for two-three years. If the amount falls during the period, the goal will not be met.
