How a Booster SIP can guide you through volatile markets?

If you are an investor wondering if the market valuation is attractive or not to initiate an investment, then the optimal approach is to invest irrespective through Booster SIP

After a stellar bull run from mid-2020 to mid-2021, the Indian equity markets have seen significant turbulence in the last few months. The latest round of correction has come on the back of the Russia-Ukraine war and inflation-led rise in interest rates globally. The benchmark Nifty-50 index in India, for instance, corrected over 10% from its peak. In such a turbulent situation, financial experts often advise investors to continue with their systematic investment plans or SIPs.

Disciplined Investing via SIPs

For those new to investing, SIP is a mode of investing into mutual funds wherein you purchase mutual fund units periodically – typically every month - through auto-debit facilities, regardless of the market conditions.

The logic behind the advice of continuing with SIPs in a falling market is simple. You get more mutual fund units for the same amount if the market goes down. In other words, your cost of acquisition is averaged downwards. Eventually, when the market rebounds, the units purchased at a lower price result in healthy gains on your investments. Similarly, when the market starts inching upwards, an SIP results in consistent investments at all levels and you don’t miss out on the rally.

While this system in itself is pretty rewarding in terms of inculcating investment discipline and returns over a long term, what if there could be an innovation to improve SIP further? This is exactly what Booster SIP does.

Booster SIP

Before we get to Booster SIP, let us spend a while on the fundamentals of investing. Other than being disciplined in investing, ace investors are very mindful of the valuation at which they invest. Simply put, they aim to buy more when market valuations are low or attractive. The converse is also true, wherein they invest less money into equity when the valuations seem expensive. Applying this principle to SIPs results in Booster SIP.

The Workings

Here, every month an SIP amount gets deducted and is invested in a debt scheme. Thereafter, basis the market environment a variable amount is transferred to an equity scheme of one’s choice. Here, the fund house uses an in-house proprietary model known as the Equity Valuation Index to decide how much money is to invested in the equity scheme. This amount could range anywhere from 0.1x to 10x the SIP amount. Through this feature, a smaller amount is invested when equity valuation is considered expensive and vice versa. The idea of this feature is to help an investor to accumulate more equity units when the market is cheap and vice versa without having to actively track the market.

For example: If an investor chooses a SIP amount of say Rs. 10,000, then this amount gets deducted every month and is invested in a debt fund. Thereafter, basis the equity valuation index, an amount ranging from Rs. 1,000 (0.1x) to Rs.1 lakh (10x) could be invested into equities.

The attractiveness of valuation is also not left for an individual to decide based on their own biases. Instead, the attractiveness of valuation is determined on the basis of a proprietary Equity Valuation Index.

If you invested ₹10,000 every month in Nifty 50 Index from January 2019, the value of your ₹3.9 lakh invested over time till April 2022 would have been ₹5.4 lakh, which means you would have earned an annualized return of 18.3%. If the same was done using Booster SIP, the value of the investments would reach ₹5.66 lakh, an annualized return of 21.4%.

So, if you are an investor wondering if the market valuation is attractive or not to initiate an investment, then the optimal approach is to invest irrespective through Booster SIP. Here, you need not worry about market valuation as the valuation model will guide the system to take the right step. The investor one scheme from three debt schemes available to set up as a source scheme which will hold your SIP amount deducted every month. Thereafter, you can choose the target fund from a variety of equity and hybrid schemes. The SIP option available is at weekly and monthly intervals.

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