Smart SIP - Meaning, Benefits, and How It Works?

Smart SIP stands for Systematic Market Allocation and Rebalancing Technique – Smart Systematic Investment Plans. It is an investment process to buy and sell your mutual fund^^ assets strategically. Smart SIPs aim to increase your returns by 3-5% as compared to traditional SIPs. Let us learn in detail about this investment strategy in this article.

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SIP Benefits
Start SIP with as low as ₹1000
Start SIP with as low as ₹1000
No hidden charges
No hidden charges
Save upto ₹46,800 in Tax
Save upto ₹46,800 in Taxunder section 80 C
Zero LTCG Tax
Zero LTCG Tax^ (Unlike 10% in Mutual Funds)
Disciplined & worry-free investing
Disciplined & worry-free investing

What is a Smart SIP?

Smart SIP refers to a smart investment strategy in which you sell or buy fund units dynamically to beat the market risks. It aims to maximise your profits by identifying the most appropriate investment opportunities based on market trends, historical data, and other factors.

Principle of Smart SIP: Buy Low and Sell High

  • You buy the equity funds when the market prices are fair and sell them when you are gaining attractive prices. 

  • Similarly, during overpricing of equity assets, you invest in debt-based SIPs to lower your risks.

Smart SIP uses technology and data analysis to optimise the investment process.

Features of Smart SIP

Smart SIPs are used to invest in top SIP mutual funds. Major features of this method are:

  1. Regular Investing 

    Smart SIP allows you to invest a fixed sum at regular intervals at your convenience. This helps you save and invest in a disciplined manner.

  2. Flexibility

    Investments with Smart SIP provide you with the flexibility to lower or increase your SIP units at any time.

  3. Systematic Investment 

    It is a systematic investment approach to help you reduce the impact of market volatility on your overall investment portfolio.

  4. Cost-effective 

    Smart SIPs are a cost-effective way of investing as they allow you to invest in small amounts without the need to invest in a lump sum.

  5. Automated 

    This is an automatic investment process by investment firms to manage your SIP investments smartly. The fund houses use algorithms and data analysis to identify the most appropriate investment opportunities.

  6. Diversification 

    Smart SIP allows you to diversify your investment portfolio with different asset classes, sectors, and geographies to reduce the risk of losses.

  7. Goal-based investing

    You can achieve your financial goals through Smart SIPs by investing in mutual funds or ETFs aligned with their investment horizon.

  8. Transparency

    Smart SIP provides complete transparency and access to your investment portfolio, enabling you to track your investment performance and make informed investment decisions.

How Does a Smart SIP Works?

Let us understand the working of Smart SIPs through the following steps:

Step 1: Select the best SIP to invest in that aligns with your risk appetite and investment objectives

Step 2: Set up the Smart SIP Plan by specifying the basic and maximum amount, frequency, and duration limits of your SIP investment

Step 3: Upon completing your Smart SIP set-up, the SIP amount and its investment intervals in the mutual funds/ ETFs varies by gauging the dynamic market valuations

Step 4: More SIP asset units are bought when the market is low and fewer when the market is high. This helps you to reduce the average cost of investment and get higher returns in the long term.

Step 5: You can modify the terms of your Smart SIP investment by changing the investment amount and duration as per your changing financial goals or market conditions.

Step 6: Monitor your Smart SIP investments regularly to ensure that it aligns with your investment objectives and risk appetite.

People Also Read: sip calculator

Benefits of Smart SIP

Smart SIPs offer you several benefits, some of which are listed below:

  1. Offers a Disciplined Approach to Investment 

    Smart SIP helps you to invest a fixed amount regularly, which instils discipline in your investment approach.

  2. Rupee-Cost Averaging Benefits 

    With Smart SIP, you get the benefits of the rupee cost averaging principle, in which you buy more units when the market is low and fewer units when the market is high to gain high returns in long term.

  3. Allows Long-term Wealth Creation 

    This is a long-term investment strategy that helps you to create wealth by investing regularly in mutual funds or ETFs while maximising your profits for a longer duration.

  4. Provides Flexibility on Investments 

    You can modify the Smart SIP by changing the investment amount or the duration of the SIP as per your changing financial goals and market conditions.

  5. Power of Compounding Benefits 

    Smart SIP helps you to benefit from the power of compounding, which means that the returns earned on the investment are re-invested to generate higher returns over time.

  6. Provides Investment Assets Diversification 

    Smart SIP enables you to diversify your investment portfolio by investing in a basket of stocks, which reduces the overall market risks.

SIP vs Smart SIP

Both SIP and Smart SIP are investment strategies that help you to invest in mutual funds or exchange-traded funds (ETFs) regularly. 

However, there are some differences between SIP and Smart SIP, which are mentioned in the table below:

Terms Traditional SIP SMART SIP
Investment Strategy Invests in a fixed mutual fund/ ETF regularly Invests in a basket of mutual funds/ ETFs and rebalance the investment portfolio periodically
Diversification Invest in a single mutual fund/ ETF Invest in a diversified set of mutual funds/ ETFs
Portfolio Rebalancing Facility Not allowed to re-allocate your investments to a different SIP plan Regular portfolio rebalancing
Investment Amount  A fixed amount is invested regularly Different amounts can be invested to buy or sell units as per the best returns strategy
Cost Cost of investment and management is lower Involves higher costs to manage the Smart SIP funds

In Conclusion

Smart SIP is a beneficial investment strategy that enables you to invest in mutual funds or ETFs with consistency. This process gives you the benefit of rupee cost averaging, automatic investment, and flexibility to modify your best SIP Plans as per changing financial goals and market conditions.

FAQ's

  • What is a smart SIP?

    A smart SIP (Systematic Investment Plan) is a type of investment plan that allows investors to invest in mutual funds or exchange-traded funds (ETFs) in a systematic and automated manner.
  • What is a Smart SIP in ICICI Direct?

    ICICI Direct is an online trading platform that offers a Smart SIP plan with the following features:
    • Convenience in investing in mutual funds with automated processes
    • Investment Amount: Monthly Rs. 1000 & Above
    • Allows auto-rebalancing of SIP portfolio
    • Option to increase the investment amount by a fixed percentage each year
  • Which is the best type of SIP?

    The best type of SIP depends on your financial goals, risk appetite and investment horizon. A Smart SIP can give you maximum returns on your mutual fund investments while a regular SIP is more transparent and easy to set up with optimal returns.
  • How can I invest smartly in SIP?

    To invest smartly in a SIP it is important to consider the following points:
    • Determine your financial goals
    • Understand your risk appetite
    • Choose the best SIP Plan that is right for your goals
    • Keep a long-term investment horizon for SIPs
    • Monitor the performance of your SIP investments regularly
    • Seek professional advice

+For Mutual Fund midcap category Returns https://www.morningstar.in/tools/mutual-fund-category-performance.aspx & for Insurance midcap fund category Returns- https://www.morningstar.in/tools/insurance-fund-category-performance.aspx
*Past 10 Year annualised returns as on 01-12-2023
*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
~Source - Google Review Rating available on:- http://bit.ly/3J20bXZ
^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.

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