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A new way to start SIP in mutual fund, SmartSIP by FundsIndia: Is it really smart?

Unlike value averaging SIPs, the SmartSIP will keep the monthly amount constant, but will allocate between equity and debt based on market conditions.

February 05, 2019 / 08:31 AM IST

One disadvantage in a mutual fund's systematic plan is that it channels a fixed sum of your money into equity markets, irrespective of where the markets are. Whether the markets are high or low, you end up investing the same sum of money, every month. Although you buy more units in rising markets and less units in falling markets, the monthly investment amount remains the same. How about investing more money when markets are down and less money when markets are up?

What is this?

FundsIndia has launched a new SIP tool called FundsIndia SmartSIP that allows you to do just that. It has tied up with Franklin Templeton Asset Management Co for this program. The way it works is this. It will invest your proceeds in two of Templeton's schemes, Franklin India Equity Fund (FIEF; formerly Franklin India Prima Plus;) which is an equity fund and Franklin India Ultra Short Bond Fund (FIUS); a debt fund.

The fund house has devised a criteria with multiple factors, like price to equity ratio, price to book ratio, return on equity, cash flows and so on, that will ascertain how much money should be invested in the equity fund. The rest automatically goes to the debt fund. The model will start by allocating 70 percent in FIEF and 30 percent in FIUS. Thereafter, the allocation will change as per the model that Franklin Templeton has laid out for FundsIndia’s SmartSIP.

Already, there are variants of SIPs that look at markets more actively and decide how much more or less money needs to be invested in specific months, depending on how the markets are at the moment. For instance, some online distributors run variants of SIPs that allow people to increase or decrease their monthly commitments. has its own version of a value averaging SIP where you get to set your return expectations at the start of the SIP. Then, every month calculates how much money you have made so far and whether you are on course to earn the targeted return. If you aren’t, then the Value averaging SIP puts more money every month. “But it’s not a very scientific way of reaching your goal. Since investors get to decide a target return, many times we have noticed that investors enter an unrealistic figure (in percentage). Such expectations could be outrageous and based on recent events”, says Vidya Bala, Head of mutual fund research, Fundsindia.

What works?

Even though the fund house’s algorithms will decide how much money needs to be invested in an equity fund periodically, your monthly outgo will remain the same. Unlike Value SIPs and other sophisticated SIP programs where the investment amount changes every month, the SmartSIP’s monthly allocation remains the same. It does so because it follows an asset allocation approach. Whatever money needs to be deployed in the equity fund changes every month, the rest automatically goes into the debt fund.

"The debt fund is not meant to be a parking ground. Our debt scheme here is the closest among Templeton’s basket of funds that gives you fixed deposit plus returns. The debt fund here is not meant to take any duration calls," says Bala.

The bottom-line: Does SmartSIP earn you better returns? Bala says it does. FundsIndia did back-testing with Franklin Templeton’s model of allocating money into these two schemes over the past 10 year period. The tenure for each of the investment made was five years. Bala said the SmartSIP’s returns were 1.6% more than a normal SIP that invests 70% in FIEF and 30% in FIUS at all times, across seventy-two 5-year return periods it considered over the span of 10 years.

What doesn’t?

Bala tells us that SmartSIP came up from the feedback that FundsIndia got from many individuals who invest in mutual funds through the platform. She said that while a typical investor looks to invest a steady amount every month, there are some investors who like to time the market.

It’s okay to be active in equity markets, but market timing is a bad thing. While FundsIndia has done its due diligence and has zeroed in on a fund house whose model it found to be best from among a few other fund houses’ it considered, there’s no guarantee that SmartSIP will continue to outperform a plain-vanilla 70:30 SIP.

This product is only to FundsIndia’s customers. This is an exclusive arrangement between Franklin Templeton and FundsIndia. You need to open an account with FundsIndia and can then avail of this facility. Even if you do that- and given the way that you need to have about 6-8 schemes in your portfolio- SmartSIP is ideally just one of the SIPs. You cannot even go to Franklin Templeton directly and opt for this option because SmartSIP is a feature on FundsIndia.

Also, FundsIndia does not offer direct plans. Since it is an online distributor, the SmartSIP is through regular plans even though the SIP is automated and it doesn’t do much. To be sure, FundsIndia does not charge any extra cost for SmartSIP.

What should you do?

Unless you are a customer of FundsIndia, it doesn’t make much sense to open an account with a portal just to be able to start a SmartSIP, especially since SmartSIP is just one product you will have in your portfolio. Though to be fair, FundsIndia is as good a platform as any, in terms of ease and convenience to help you invest in MFs.

Then again, there are few other platforms such as Mutual Funds Utility that allow you to invest in direct plans. Your choice of platforms should depend on the features they offer and the costs they charge.

If you are a customer of FundsIndia, then SmartSIP is a good option to add in your basket.

Kayezad E Adajania
Kayezad E Adajania