How it works
In this SIP, the investment is done on a regular basis but the amounts vary. To avoid any unpleasant surprise in terms of the SIP amount being too high, the investor has to pick a range. The actual amount will vary between the highest and lowest. Within this range, more is invested in a down market and less in an up market. The minimum SIP required is Rs 1,000/month.
How is it calculated?
A = Fixed minimum instalment amount
B = Fixed maximum instalment amount
C = OptiSIP instalment formula value
OptiSIP Formula = [{(A) x Current number of instalments} - Account value of investments via OptiSIP as on 5th day (T-5) before the monthly instalment date]
Our view
The concept is good and the investment is done directly into an equity fund. Since there is no fixed amount in terms of the monthly investment, the investor will have to keep fairly large amounts available for investing in just one fund because depending on the range, the investment will be made. According to literature from the fund house, they recommend a fairly high maximum instalment amount based on back testing. They recommend choosing a fixed maximum instalment amount 4x to 5x the fixed minimum instalment amount since it appears to give relatively better investment results. So if the minimum amount is Rs 1,000, the maximum would be Rs 4,000 or Rs 5,000.
This is a fairly large amount to go into just one fund, specially for an investor who wants to start small.
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